Friday, January 25, 2008

Weak dollar hurt Latin America export:Its implications

Most of the Latin America economies exports are highly concentrated on primary products, such as agricultural products (wheat sugar, coffee),mining products (copper, silver) and, few countries export gas and oil within the energy sector. Manufacturers products also are in export supply but they have a smaller share of total export. On the other side,15% of Latin American economies GDP are concentrated on USA markets. It is widely known that the USA economy is under a slowing down process, which means that as long as American income GDP ) decrease, the total demand for Latin Economies export also decrease. Additionally the weak dollar also affect the exporting sector ,because it make more expensive good coming from those economies.
The local currencies of most Latin America economies ,have appreciated not just because of more foreign investment, or incoming capital flows ,but also as a consequence of dollar depreciation.. Thus, the Brazilian real has appreciated by 25% against the dollar, up to October of the year 2007.Brazilian economy though ,is more diversified with its exporting markets.-
According to Latin America Economic Commission, current account balance worsened in 14 out of 19 Latin America economies. Colombia (-3,9% of GDP), Uruguay (-2,6% of its GDP)Mexico (-0,8% of its GDP) .Argentina and Brazil have more diversified its export markets toward Europe ,China and India. In the Argentina case , exports to the USA economy , represent only 0,3% of its GDP , ranked in the third place after South common markets association, and Asian economies.-
The solution is far from an easy implementation, because primary agricultural export got subsidies from European economies which make their prices cheaper than otherwise. It follows that the dilemma for these agricultural exporting economies lies between either high prices because of local currency appreciation ,or low prices , because of subsidies in European markets for some of its primary exports. Therefore these economies are more vulnerable to any change in world economy conditions.
Some sectors of Chilean exports have also been affected by dollar weakness ,although the annual volume for the year 2007 was positive, because of copper export volume ( 60% of total exports),which had a very good price throughout all year. Private Exporters though, have complained about this situation because peso appreciation has led the sectors to important losses of competitiveness. High labour cost, have affected additionally exports performance ,in such a way that world producers like Dole closed its production operation, concentrating itself only in products marketing.-
All of these issue means, that it is important for Latin America economies, to pursue a different and more diversified export strategy, to improve their management model focused on efficiency , productivity and value. All of those exporters (Germany ,Japan , South Korea are good examples) which has made of quality its trade mark, have been able to overcome the cost of its currency appreciation against the dollar.-