Bankers say Venezuela-Colombia conflict won’t affect Latin American economy
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Rising tensions between Colombia, Venezuela and Ecuador are unlikely to have a broader economic impact on Latin America, directors of the Institute of International Finance said Thursday.
William Rhodes, president of Citibank NA and first vice chairman of the institute’s board of directors, said investors doubt there will be war in the wake of a Colombian military attack on rebels across the border in Ecuador.
“My experience is that, in the past, this kind of thing tends to work itself out,” he told reporters at the opening of the IIF membership meeting, the first ever held in Latin America.
Venezuelan President Hugo Chavez predicted on Wednesday that the US$6 billion (euro4 billion) in annual trade between his country and Colombia would fall sharply, but IIF vice chairman Roberto Setubal, president of Brazil’s Itau bank, said the conflict would not hurt the economies of other nations such as Mexico, Argentina or Brazil.
“It’s very localized,” Setubal said. “It’s an isolated occurrence and shouldn’t affect the region.”
The current slowdown in the United States is a greater threat, they said.
Although Latin American economies are more immune to U.S. woes than in the past, they still will feel the impact of “an exceptionally difficult global environment in the period immediately ahead,” Rhodes said.
“There is no doubt that the U.S. slowdown has a direct impact on a number of Latin American economies, most notably Mexico,” he said.
Private capital inflows to emerging markets are expected to shrink to some US$730 billion (euro480 billion) this year, down from a record US$780 billion (euro510 billion) in 2007, Rhodes said.
He also commended Brazil for a dramatic economic turnaround in which Latin America’s biggest nation has reduced four-digit inflation in the 1980s to about 4 percent today, paid off its foreign debt and attracted massive foreign investment — in part because of high domestic interest rates, now at 11.25 percent.
“Double-digit increases in investment and strong aggregate demand are continuing to drive industrial production here,” Rhodes said.
He advocated an expansion of the G-7 group of major industrialized countries “perhaps to a G-11 — including Brazil, China, India and Russia.”
The two-day meeting in Rio ends Friday.
Filed by Anita Li under Global Financial Crises, Investment and Competition Policy