Brazil's troubles arehaving a knock-on effect on its neighbors; a political shift in Latin Americaspurs a word of warning for eager investors; and The New Yorker deems DilmaRousseff to be the new Richard Nixon.
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Brazil's current economic and political challenges couldimpact its neighbors in varying degrees, Gerren Bethel of International Banker reports. Major trade partners Bolivia andParaguay will take a hitting as Brazil scales down its export demands, whilefor Andean countries that are not trade-dependent with the country, "thespillover impact…should be negligible," Bethel writes. Meanwhile, the LavaJato corruption scandal could make it "increasingly difficult for Brazilto secure investment contracts in neighboring countries, as well as globally,from a reputational perspective" and could compromise regionalpartnerships. On the banking front, Bethel argues that "the risk ofcontagion…does exist" from Brazilian banks that have expanded sizablythroughout the region, " but the fact that neighboring countries mainlycontain branch offices, rather than subsidiaries, will be vital in restrictingthe shock effects." Poised to take advantage of Brazil's demise is Mexico,which is set to overtake the embattled country to be the region's economicleader, according to the report.
As Latin America's political and economic spheres undergo anarray of change, Forbes' AlejandroChafuen highlights long-term trends investors should consider before jumping inthe region's markets anew. One such trend is the marked shift in the region'spolitical realm, as socialist ideals have started to give way to a free marketfocus. However, Chafuen attributes this trend more to do with economicconditions than a true "shift in the understanding of the importance ofeconomic freedom." He also notes that Latin America is very much a mixedbag: "Some economies are stagnating, a few are completely stagnant, andothers are prospering," making it harder to paint on overall picture forthe region.
Nicholas Lemann of TheNew Yorker turns back the pages of history to draw an interestingcomparison between former U.S. President Richard Nixon and his currentBrazilian counterpart, Dilma Rousseff. Just as Watergate precipitated Nixon'sresignation during his second term in 1974, Brazil's ever-expanding Lava Jatoscandal now threatens to unseat the deeply unpopular Rousseff, who wasre-elected in October 2014. With corruption allegations in Brazil's politicalspace making headlines almost on a daily basis, the situation has grownincreasingly disruptive, "even by Brazilian standards," Lemannargues. However, the country's political elite are not the only ones at risk,as millions of Brazilians enrolled in key social programs also stand to loseout "in the reshaping of Brazilian politics that is to come."
The Miami Heraldfeatures a detailed diagnosis of Latin America's economic health, and theresults are grim for most of the region's nations. As Mimi Whitefield and JimWyss write, overall growth in the Americas is expected to reach a measly 0.2%this year, with usual culprits Brazil and Venezuela dismantling economic gainselsewhere. Countries were also wounded by "the reluctance to make economicchanges during the salad days of high economic growth," as one analystnotes. "Pretty strong headwinds" are expected, with falling commodityprices, a limping global economy and unfortunate terms of trade all hammeringprospects for the region.