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April 13, 2016
As United States governmental workers began returning to their jobs just moments before the default deadline, a sigh of relief could be heard not only nationally but internationally. This sigh of relief after two weeks of negotiation in the United States could be heard loudest coming from Latin America as the shutdown and possible default was a strong wake up call to those in charge of the economies within this region. The debt default could have hurt the currency exchange rates and weakened Latin America’s recent and impressive growth rate.
The United States is still Latin America’s largest trade partner as well as foreign investor and therefore the threat of defaulting would have caused a worldwide economic blow that would have begun in Latin America and the Caribbean. Speaking about the threat and problems, Colombian financial analyst Juan Alberto Pineda stated that as a result of the shutdown, “Latin America, already flooded by the excess of American dollars with no support, would see a downgrade of its currencies”. Although some currencies in Latin America have shown signs of improvement this year, some such as the Venezuelan Bolívar became some of the most devalued this year in relation to the dollar. The Bolívar saw the third-biggest drop in the world and was the biggest fall in Latin America relative to the dollar. Although the Venezuelan Bolívar is not known for its strength, the regions larger economies of Argentina and Brazil were respectively the second and third worst hit economies in the region due to their strong ties to the United States. The devaluation of the currencies in Latin America due to their reliance on the United States certainly came as a wake-up call to maybe look at other economies such as the Chinese which has remained fairly stable in recent years.
Latin America’s GDP growth has been slowly progressing and increasing in recent years in contrast to other world economies. The International Monetary Fund expects Latin America’s GDP to grow 2.7% this year, however, this is the slowest in comparison to recent years. Latin America was growing faster than most of the other regions in the world but this recent scare has certainly presented an unsettling future scenario. This perhaps explains the recent push towards trade and export agreements between Latin American countries with the EU and China. Realising the vulnerability of depending on their North American neighbours, the nations of Latin America are searching elsewhere to fill the possible future void. China has been steadily increasing its presence in the region and is already Chile’s biggest trade partner. The two biggest economies of Brazil and Mexico have made steps towards strengthening relations with the Asian giant. The recent shining light of Colombia, which seems to be burning the brightest in the region, has recently signed a Free Trade Agreement with the EU and Ecuador looks set to follow suit in the not so distant future. Colombia’s Economy Minister, Mauricio Cárdenas summed up the tepid sentiment felt between North America and Latin American, by stating, “The U.S. has always lectured Latin America on the importance of keeping public finances in order — they should really show more stability in their policies”.
Although the United States has somewhat returned to order as the governmental shutdown draws to an end, the shockwaves and scare of a possible United States default still ripple through Latin America. This does present a large amount of opportunities for European nations and China who were seeking to stamp their mark on the region but had been otherwise shunned due to the ‘reliable’ North American neighbour. Will this scare be a blessing in disguise for Latin America as it moves towards forming closer ties with other worldwide nations or, will the region continue to cling to the United States as a dependent child does to a parent…only time will tell.