5 Effect after the reaction
5.1 Argentina
The main goal for Argentina’s Government was to inject liquidity in the local market. As a result of their monetary politics their national inflation was controlled in the turbulence period Graph 12; this was able to generate employment
Although the decline in the GDP lasted three quarters the economy as been able to bounce back thanks to the revival of growth in some of Argentina’s export markets, notably to Brazil and China Graph 9. In particular, the rebound was particular strong in manufacturing and agriculture (International Labor Office, 2010) the impact of the crisis was mitigated mainly through job retention measures and through policies aimed at increasing workers revenues, thus boosting demand and reviving economic growth.
Although the Argentine Pesos has not come back to the price were it was before the crisis Graph 10, this looks like the biggest challenge for the national government, however the international reserves have stay steady.
5.2 Brazil
Also as we could see the international US$ funding was hard for all the companies around the world, in Brazil the sector was severely hit. But as we could analyze, the Central Bank of Brazil and the government did an excellent job to inject capital to the market and maintain the health of the national financial industry.
And now the foreign exchange has achieved the same rate as before the crisis started. Thanks to the cautious monetary policy that was consolidated by the revaluation of the Brazilian Real Graph 14. As well the international reserves have reached historical high Graph 3.
One of the most important factors was the perception that inflation, the eternal enemy during recessions in Brazil, would continue to fall. But the level has not reached the ones before the crisis started. Inflation declined when the economy constraint, which is a positive result from the monetary policies taken by the government. But now, it started to go up with out a reasonable explanation Graph 18.
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Brazilian exports began to enjoy a positive knock-on effect. Specially thanks from the strong recovery of the Chinese economy. After its GDP growth fell to 6% at the beginning of the year, the economy of the Asian giant, stimulated by its spectacular investment package, grew from 7.9% to 8.95% in the second and third quarter, respectively. Therefore, the exports recovered Graph 17. In 2009 China became the largest trade partner of Brazil and was the destination for 13% of national exports.
5.3 Chile
Although the decline in oil price provides some inflation and costs relief, the government with the monetary policies has been able to control it to records levels. The monetary policy conducted by the central bank, which uses an inflation-targeting regime supported by a floating exchange rate, has pay-off Graph 4. The currency price has reached the same level as before the crisis Graph 6. And as well as the unemployment rate Graph 22.
Graph 6.
Source: Latin Macro Watch (LMW), Inter-American Development Bank
Chile is considered one of the most transparent, safe, and stable countries in Latin America, with one of the healthiest Fiscal system in Latin America. Chile has been a
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Chilean Peso Nominal Exchange Rate per US $ monthly
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realized that copper, Chile's main export, is highly cyclical. Thus, with this they built up an Economic and Social Stabilization Fund, to which copper revenues are committed when prices are high. And helped to stimulate their local economy and public investments. After the crisis Chile has a steady growth in their Gross Domestic Product, surpassing their levels before the crisis as well Graph 23. With the GDP growth also the international reserves have reached high records since January 2011, they did not move too much, did not feel dramatically but neither grew.5.4 Colombia
The economic slowdown had a positive impact on inflation, which fell to 2% in 2009, from 7.7% at the end of 2008. Food price inflation fell to zero in 2009 and inflation levels have been kept in lower levels, even lower than rates before the crisis started Graph 29.
The Colombian Peso also has reached the same level it had before the crisis Graph 25, and their international reserves have started to growth, also reaching record high Graph 24.
The Colombian economy experienced rapid decline of Gross Domestic Product, but also a rapid recovery in 2011 they a double-digit growth in their GDP Graph 30.
Considering the low-level globalization of Colombia's economy, and taking in consideration other countries strategies Colombian companies should explore new markets in the world and diversify their exports to counter the impact of the crisis.
5.5 Mexico
As for the monetary policy stance, given the rise in the price level caused by the depreciation of the exchange rate, it was important to prevent inflation expectations from deteriorating, as this would have led to a further worsening of the inflation outcome Graph 36. The Mexican Peso has not reached the levels that they had before the crisis started Graph 32, neither the inflation rate has came back to the same levels Graph 36, and their international reserves slowly decreased in 2009 but it dramatically increased since January 2010 reaching also records high Graph 31.
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In the case of Mexico, the particular features of its economy magnified the impact of these shocks, which explains why Mexico entered into a deeper recession than other economies. Perhaps the most important of those features is its high dependence on exports to the United States, as well as their composition. Soon after the deeply decline of Gross Domestic Product the GDP started to growth slowly again Graph 37.
5.6 Peru
Peru has expanded their export products the started to provide textiles, manufactured goods, and agribusiness. But they have become more international openness signing trade agreements with countries such as Thailand, Colombia, Canada and China. China-Peru agreement is the first free trade agreement package China signed with a Latin American country. As a result of that we can see that Peru has had one of the most amazing come backs, they have had a double digits growth in three consecutive quarters in 2009 and in the first quarter of 2011 they have an impressive 20% growth Graph 7. The Gross Domestic Product has been reflected positively to this with a steady growth Graph 43.
Graph 7.
Source: Latin Macro Watch (LMW), Inter-American Development Bank
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Peru Exports: millions of USD $ - Quartly
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Has we can see, the monetary policies applied by the national government were successful in controlling the inflation. The inflation reached it highest level in the same period as Lehman collapse but gradually fell to almost 0% levels during the next year.
But in 2010 started to grow again, but not reaching high levels as before Graph 42. The currency did not move too much and has stay in the same price as in past, gradually appreciating Graph 39. Their international reserves gradually decreased during 2009 but as well as the exports they had bounced back stronger reaching record high Graph 38
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Peru was affected by the crisis, as all the other countries, but they bounced back.
Most important they bounced back stronger. The diversification in their global trade, seems to been impacting positively the exports hence also the economy.
5.7 Venezuela RB
Although Venezuela could be suffering due their monetary and economical policies.
The global importance of Oil is what has made the country have a reasonable GDP growth not decreasing in 2009 as many others did and having a 16.77% in 2011 Graph 47.
The exports suffered a big downturn in 2009 a decrease of -63.40% and in the following years, they have not been able to reach the same levels as before. Venezuela also has been focusing to sell more barrels of oil to China, now they are approximately selling 500,000 per day. Although the reduction in exports is not reflected in the GDP, it might be because of the price of commodities, specially the oil price.
The inclusive social policies, which are the basis of the Venezuelan social economic model, have not provided any stability in their economy. Certainly the people is not very happy with the devaluation of the currency Graph 5, (some news reports have reported that the US Dollar can be sold in a much higher price in the black market), neither with the inflation that caused Graph 46. Venezuela in comparison to other countries, had a decreased in their international reserves but has not been able to increased after Graph 43, which is alarming.
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5.8 Summary
All the countries were affected by the crisis, but some were better prepared than others. Chile has one of the most effective counter cyclical policies in the regions, and had a discipline to implemented although election occurred. The “Economic and Social Stabilization Fund” should be s tool that all the countries should also create to be preparing for economic downturns like this. Brazil also had an excellent performance, it is the biggest economy in the region but, it took the leadership to start diversifying their products to others region, like China. Peru was for having an average performance in the region, but after the crisis they move aggressively to expand their market. It has been said that in a economical financial crisis situation, new opportunities appear, and Peru is one of the biggest example of this having a impressing come back performance.
Venezuela BR has one of the worst performances in Latin America; the reliance in the oil does not look as a long-term strategy, although it is a powerful tool. Venezuela RB could be in a much better position. Many people blame the administration of the actual president and his insistence with his social economical system. Venezuela has not been able to refuel their international reserves as other countries have done it, which put them in a scary liquidity position. Venezuela should take lessons from Chile fiscal system administration.
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It is clear that the Global Financial Crisis hit seriously Latin America; due the freeze in the global trade market, leading export countries suffered more than any other. In the other side, many countries were prepared in case of an economy turndown. The large international reserves accumulated from the past and a healthier fiscal system; became the most important tools to fight against this adversity.
Each country, due it necessities, have a different strategy to fight against this challenge. Most of them focused supporting the channels worst affected; export and financial. The international reserves and the fiscal system were the main two weapon that countries used to inject liquidity into their market. And in some cases like Brazil and Mexico they received additional financing from other resources like International Banks and swap agreements with the United States Government. The health in their external balance sheet and fiscal space provided a wider range of policies to be implemented, most of them targeted to small and medium enterprises. Many reforms and fiscal stimulus were for short-term solvency, this helped local economies to have a less pronounced decline.
After the crisis triggered in September 2008, the main strategy for most of the countries was to use their reserves to inject liquidity. We can see in most of the charts, those months after, how the reserves declined, in some cases a more pronounced decline in some other cases a more prolonged. This means that some countries used more of them, some other used less. But once the market started to stabilize and the exports and Gross Domestic Products started to growth as well countries started to accumulate international reserves once again.
The strategy to fight against the international credit constraint worked. To support the export channel countries looked to diversify their products into new regions and quit the dependency in westerns countries and focused more in the Asia region, especially in the giant economy of Republic People of China. The strategy seemed to work, Brazil now has a principal trade partner China. Although the most interesting case is Peru, they aggressively expanded to the Asian market not only making a trade agreement with