The Americas’ Summit Leaning Ledges
After 2009’s sedate gathering in Trinidad and Tobago, hemispheric leaders will follow the IDB annual meeting with a summit in Cartagena, Colombia, itself a symbol of the continent’s revival with its anti-crime and drug campaign again ensuring tourism’s popularity. The Free Trade for the Americas theme that initially motivated the conclave has recently been supplanted by a wave of protectionist measures in Brazil, Argentina and elsewhere as the Federal Reserve’s ultra-loose monetary policy has spurred speculative capital inflows in contrast with previous calls for stronger US direct and portfolio investment consideration. The host has again resorted to daily intervention to halt peso appreciation after easily placing half its 2012 external bond program with a $1.5 billion issue. FARC guerillas recently renounced kidnapping as a terror and funding tactic, and the Santos administration has moved to enshrine a fiscal responsibility law which may bring a sovereign ratings outlook upgrade in the first half. Oil production now matches Brazil’s scale and higher export prices have raised the dividend from state company Ecopetrol, although domestic pump charges will also rise. The central bank continues its distinct 25 basis point hiking cycle on 3.5 percent inflation and 20 percent bank credit expansion, as the minimum wage was as well lifted 6 percent with unemployment approaching single-digits. In Chile, headline price pressure is at the same level but the currency has not spiked with its petroleum import dependence and ambiguous copper direction. GDP growth should be close to 5 percent and the new monetary authority chief has urged a cautious stance after an early year minimal rate cut. The mining industry’s future, and in particular Codelco’s freedom from state control and earnings transfer, is again under debate after foreign partner disputes and an eruption of worker unrest.
In Peru such tensions provoked a cabinet reshuffle, but President Humala’s approval rating has climbed on the still buoyant economy and success in eliminating remaining Shining Path militants. The sol is up against the dollar despite purchases through February already above all of 2011, as the greenback’s share in total bank deposits reverts to one-third. After a well-received flotation by the city of Lima, the sovereign may return to global bond markets more actively to underwrite an ambitious public investment scheme. Uruguay is likely soon to join the investment-grade club with the budget roughly balanced and the current account hole hovering at 2 percent of GDP. 8 percent inflation has been met with rate tightening but is partially due to heavy vacationer demand for lodging and hospitality services. Its soft bond restructuring was hailed throughout the Greek saga as an elusive model as the Cartagena summit commences its own unsettled ascent.
