The Andeans’ Breathless Race Resistance

Peru and Colombia had 15 percent MSCI stock market advances through August while Chile was off 5 percent as other Andean area members Ecuador and Venezuela also grasped for investor inroads. Peru’s perennial GDP growth lead has faded with halving to 3-4 percent this year as the current account deficit nears 5 percent of GDP on worsening commodity trade terms and bank consumer loan retrenchment. Fishing and farming have also experienced bad weather ,and copper mine projects have been held  up on environment and corruption claims further eroding President Humala’s low approval ratings on suspicions he has groomed his spouse as successor. The government has cut interest rates and offered small-business stimulus but critics emphasize mining overreliance and the limits to monetary loosening with the financial system’s high dollarization and foreign investor local debt ownership. Finance Minister Castilla may be sacrificed after surviving earlier cabinet reshuffles as central bank head Velarde tried to instill confidence at the summer US conclave in Wyoming where Federal Reserve Chair Yellen reiterated the imminent end of quantitative easing.  Colombia will take the growth crown with a 5 percent pace spawning recent rate hikes in comparison, as Finance Minister Cardenas was immediately reappointed after President Santos’ second-round repeat victory. Moody’s boosted the investment-grade sovereign rating with a nod toward the public-private $25 billion medium-term infrastructure program which has drawn bond inflows along with GBI-EM index reweighting. Housing and construction were helped by mortgage subsidies, and oil and coal export prices have been solid. Under the new fiscal rule the deficit is under 1 percent of output, but the gap may increase should a peace deal be reached with the rebel FARC for demobilization and reintegration support. The business community is split on the concept of a guerilla accord potentially extended to the smaller ELN group, and is against re-imposition of a special wealth tax as applied at the height of fighting. Hundreds of kidnapping victims are still at large and paramilitary forces associated with conservative political parties insist instead on armed response. President Santos intends to put any pact to a national referendum as exporters hurting from the high peso have already turned against him despite expanded currency intervention under the standing regime.

In Chile business relations are chilly with returning President Bachelet as growth dipped below 2 percent and the central bank softened rates as the currency continued to slide to 575/dollar. The sentiment reading at 40 is the lowest in five years and inflation exceeds the target range at 4.5 percent. Mining production was aided by renewed budget allocation for state-run Codelco as university education and corporate tax reforms were passed after opposition compromises. The steps aim to address income inequality with 80 percent of the population earning under USD 1000/month according to academic studies. Ecuador won ratings agency acclaim with an upgrade after successful bond market re-entry and decent fiscal and balance of payments showings, while oil-rich socialist cohort Venezuela was further mired in stagflation and leadership swings as President Maduro got a tepid reception at the party congress and officials following the ouster of hard-liner Giordani closed the Colombia border smuggling lane.