Fear not Despot nor Devaluation but Do Fear Your Rival

Fear not Despot nor Devaluation but Do Fear Your Rival

 

Having proved its economic mettle in the aftermath of the financial crisis, Latin America faces healthy prospects in 2011 and 2012. The threat of sudden devaluation, be it at the hands of external economic shock or political instability, is no longer a priority risk in Latin America, save perhaps Venezuela and Ecuador, with their managed currencies and elevated political risk. Latin American economies and currencies are generally well-managed with increasingly independent central banks and decent fiscal discipline. Hefty foreign reserves held by the region’s larger economies combined with diverse capital inflows, reliable remittance flows and strong commodity exports all provide a solid underpinning to currencies. Even the political pendulum appears to have found a centrist equilibrium that is by and large business friendly, as long as business brings patience and deep pockets to its ventures. With such a rosy macro-economic and political backdrop, a business investor might ask: Why aren’t we present in Latin America? It is a question resonating in business boardrooms around the world, and companies are clamoring to enter Latin American markets, particularly Brazil.

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