Taking Stock

What does appear to be emerging as good news from the morass of Latin America’s political and economic gloom are its stock exchanges.  After having been dull last year, emerging markets in South America are beginning to shine.  Surprisingly so when one considers that the International Monetary Fund and the World Bank have again reduced the regional GDP growth forecast for 2003 to 1.5 per cent and in 2002 foreign direct investment dropped 33 per cent to US$55 billion.  Admittedly, like the allegorical curate’s egg, the news coming out of Latin America is only good in parts.  Venezuela (more later) is certainly not part of the positive picture whereas  Argentina, even with its recent calamity, has seen its stock market go up over 25 per cent in US dollar terms following the presidential election and a temporary IMF agreement that pulled the country back from the brink of official, as well as private, creditor default.  The Brazilian market went up over 20 per cent in US dollar terms also after the victory of president Luis Inácio Lula da Silva which coincided with a record trade surplus and a presidential commitment to both tax and pension reform.  To the north, Mexico’s stock market, in US dollar terms, increased more than 5 per cent with steady oil prices during the war in Iraq and positive agricultural data.  The country has now retired its remaining Brady bond debt also.  In Chile interest rates are at a record low of 2.75 per cent and its stock market has gone up by more than 17 per cent in US dollar terms so far in 2003.  In Colombia, thanks to US military aid, damage due to guerrilla attacks has been reduced in strategic oil fields and business output (heavily weighted towards services) continues to improve – despite declining coffee prices and the impact on exports which the problems in neighbouring Venezuela have had.  In mid-May the Colombian stock market was up 9 per cent for the year.  Even Peru, where president Alejandro Toledo’s popularity ratings have dipped below 20 per cent recently, has seen its stock market increase over 12 per cent in US dollar terms this year.  Significantly, Toledo’s party controls the largest block of votes in congress which will facilitate much-needed changes to fiscal and labour laws.  Ecuador’s tiny stock market is turning positive and US dollarisation has reduced inflation to under 10 per cent encouraging significant increases in bank loans and deposits.

The Institute of International Finance expects a modest rise worldwide in net private capital inflows of around US$139 billion in 2003 of which just under 25% is expected to flow into Latin America.  So there are some encouraging developments even although they are not evenly spread across the continent.

Outdoor Games

Panama perhaps cannot say that its bourse, unlike its banking, is a regional leader, but it does appear as a haven of stability, in relative terms, as far as the current social, political and economic climate in Latin America goes.  One only needs to look at events in Argentina (despite a positive stock market), Uruguay and Venezuela to see that in the greater scheme of things, Panama’s problems – which are readily acknowledged – are far from being exceptionally worrisome.

No better example than Venezuela can be found to illustrate the point.  Following both a general strike and government currency controls, the country’s GDP has contracted by 29 per cent in the first quarter of 2003 which is an all-time record.  Since the start of 2003 about 2000 companies have shut down, according to some estimates.  Now Venezuela’s National Assembly has been drawn into the męlée after pro-government members of the assembly held an unprecedented outdoors session in June.  This followed the spectacle, two days earlier, of opposition members physically preventing pro-government legislators from meeting to approve a new and very unpopular proposal.  So a meeting – unattended by the opposition – was held at the foot of a hill just a few blocks away from the Legislative Palace.  The opposition legislators regard the single-party outdoor session as a farce and any agreements reached will not be recognised by them.

The heart of the problem is a series of changes to the assembly’s internal rules that would prevent the opposition from blocking any government legislative initiatives, thus allowing the approval of new laws intended to limit, inter alia, press freedom and restrict the right to free assembly. 

The confusion over the assembly’s procedural rules now means that the future operation of the legislature is not clear.  Nor is the position of a hoped-for deal initiated more than six months ago by César Gaviria, the secretary-general of the Organisation of American States, between Hugo Chávez and the opposition.  At the end of May a 19-point document was signed by both sides concerning a referendum on Chávez’s rule.  Just after the signing both parties began quarrelling again over interpretation of the pact and, depending on which argument prevails, the government could delay a presidential referendum until August, 2004.

Unlike the Brazilian president, whose tenure is still only months old and which has prompted him to defend his record so far by saying that you can’t “judge a baby while in its mother’s womb”, Hugo Chávez has no such defence.  The baby has been born and is in danger of being thrown out with the bath water.  When Chávez, in promoting a peaceful revolution, promised more open government, I am sure that Venezuelans did not have in mind a special one-sided congressional session held at the foot of a hill in El Calvario park in the centre of Caracas.