Sunday, February 22, 2009

Mexico Comes to Reality; News From Across Latin America

Latin America Press
Financial Times
China News

After months of claiming that the global credit crisis would not have a large effect on Mexico, the government acknowledged that its country is heading towards a recession. The acknowledgement came amid reports that the country saw a 1.6% contraction in the last quarter of 2008, the first such quarterly contraction in 6 years. Mexico cites low demand from the United States, its main trading partner, as the main reason for the likely recession.

The International Labor Organization reports that unemployment is set to rise across the entire region, with the Caribbean being hit particularly hard. The recent 5 year trend of lowering rates of unemployment is certain to end this year. The ILO projects unemployment to increase from 7.4 to 8.3 in 2009. The usual culprits in the global financial crisis are again being blamed: falling commodity prices, scarce availability of credit, and reduced remittances.

Countries across Latin America are announcing plans to help reduce the disastrous effects of the credit crisis. Mexico plans to introduce $54 billion recovery package and will freeze gasoline prices. Brazil plans to set aside $45 billion in credit for business and also announced an ambitious plan to build 1 million houses in an effort to shore up its construction industry. Argentina will invest $20 billion in infrastructure and education projects, and Panama is setting up a $1 billion fund for its banks from loans from developmental banks.

Some critics think that in addition to such measures, Latin America must demand that the United States and Europe honor their trade agreements. Many worry that the recent “Buy American” initiative found in the US stimulus bill will have an adverse effect on Latin America.

1) What type of political leverage could Latin American countries use to enforce their trade agreements with the US and larger European countries? Should these larger countries continue to honor such agreements for moral reasons?
2) How successful do you think the various recovery packages will be?
3) Do you think a gasoline price freeze will be productive? Isn’t it true that gasoline prices have fallen to record lows? When gasoline, or oil prices finally start to raise again won’t that be a signal that the worst of the financial crisis is over?

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