Friday, December 27, 2013

Latin America and Commodities

I've written about this so many times, but the news cycles on Latin American economies are predictable. Basically, you read about how awesome Country X is doing because of GDP and exports. Some time later, you will read how Country X faces an economic challenge of some sort. The structural causes are the same: dependence on commodities. That part generally is mentioned but remains unanalyzed.

So, for example, we hear that Latin American currencies are falling because demand for commodities is down:

Brazil’s real has lost 13 percent this year, extending its decline since the end of 2010 to 30 percent. The Chilean peso dropped to a two-year low on Dec. 3 and is down 9.2 percent this year. Mexico’s peso has declined the least, falling 1.2 percent, while the Colombian peso and Peruvian sol dropped more than 8 percent. Argentina’s peso, managed by the central bank through regular foreign-exchange market interventions, tumbled 24 percent, the most since 2002.


OK, but why did this dependence remain and diversification not occur when the money was flowing in? That is the interesting question, though I can understand why it's always omitted--the target audience for these articles consists of people who don't care. Their goal is making money, not promoting reform.




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