LatAm Economic Growth Rate Vigorous, Says IMF Outlook

A recent IMF Regional Economic Outlook has forecast 4.75 percent economic growth for the region in 2006, the third year Latin American economies expanded by more than 4 percent. ''This makes the ongoing period the most vigorous three-year period since the 1970s,'' said the report.
The unprecedented spurt in Latin American growth has boosted South Florida businesses. But some analysts are holding their breath over whether the expansion will last.
South Florida businesses are riding the surge of Latin American economic growth, which the International Monetary Fund calls the most vigorous expansion since the 1970s.
It also means South Florida trade and finance executives are traveling to Latin America to try to drum up business in this expansion wave. ''I am doing it right now,'' Jacobo Gadala-Maria, chief executive of EFG Capital, an asset management firm, said from Bogotá recently. Gadala-Maria, a veteran Miami broker-dealer, was in the Colombian capital.
''We are very, very excited about the prospects of doing business in Latin America because of what has happened in the past few years,'' Gadala-Maria said, adding that his firm always does well when economies are growing and creating wealth.
What is even more remarkable is that the expansion continues in much of the region despite the election of more left-leaning presidents, the anti-American position of Venezuelan President Hugo Chávez and the collapse of Washington's free-trade project, the Free Trade Area of the Americas.
''Even Chávez, who has been talking the most anti-business rhetoric, has not really done much to hurt Venezuelan business,'' said Gadala-Maria. Venezuelan businesses are making money, especially those that cater to consumers, he said.
Venezuela and Argentina, despite repeated dire predictions by some economists, will record their third years of the highest economic growth in the region as their recoveries from economic collapses continue.

Commodity Prices
The Latin American rebound has been driven by a sharp rise in commodity prices and the price of petroleum. World demand has pushed oil prices up 150 percent in the past three years, while commodities such as copper and grains have climbed 80 percent.
The Inter-American Development Bank released estimates last week that Latin American exports would rise by 21 percent in 2006 to a record $656 billion. Despite the growth, the IDB trade specialists warned that future export growth could be dampened by a drop in U.S. demand, falling commodity prices and rising currencies.
Latin America has experienced booms before that ended abruptly. The question now is whether this economic expansion could also end in a bust, pinching poor and middle-class families in the region as well as South Florida businesses that depend on Latin America for trade.
''In the past, similar upswings have often carried the seeds of their own destruction,'' said the 51-page IMF report.
This time the world economy is boosting Latin American even more than in past recoveries, the report said. Export prices are better and world interest rates are lower, which means countries pay less to service old debt and to issue new bonds.
Money flowing to the region contributes to some stability because it is concentrated in foreign direct investment and not in stocks and bonds, where it can be pulled at the first sign of an economic downturn.

Reserves Boost
Latin American countries have boosted their foreign reserves to more than $300 billion as well as cut down government deficit spending.
Miami law firms also are benefiting from healthier Latin economies. Last month, Mark Bagnall, a White & Case attorney in the Miami office, and Donald Baker, a partner in the firm's Sao Paulo office, served as counsel to the underwriters of the largest debt issuance ever made by a Latin American company.
Brazil's Companhia Vale do Rio Doce, a huge mining company, issued $3.75 billion in international notes. The issue was completed just a month after the company launched a hostile takeover of Inco, the second-largest nickel producer in the world.
''It's a first,'' Bagnall said, adding that the debt issue work was completed in a month. “In the Sao Paulo office, they have been extremely busy in the last year and a half.”
Many companies have been going to international markets to issue debt, he said.
But the IMF sees potential problems from continued high levels of debt, and the report said the expansion of public spending could derail healthy public accounts.
The IMF also warned that public investment - spending on new roads, schools and other infrastructure - is lower than other developing countries. Latin American countries devoted just 4.5 percent of their gross domestic products to public investment from 2003 to 2006. Asian countries at 8.5 percent and African countries at 8 percent spent comparatively more.
The low rate of public investment raises concerns because it shows Latin America is not spending as much on its future as the rest of the world. Short-sighted consumption splurges have prevented the region from laying the foundations for long-term growth in the past. Still, the current expansion has helped countries lower their poverty rates.
That was especially true in Argentina, where almost half the population lived in poverty during the economic implosion of 2001-2002. But the region's income inequality remains among the highest in the world, much higher than industrialized countries or Asian ones.