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Asia Pacífico | Observatorio Parlamentario

Asia-Pacific economic outlook for 2009 (Part 3)

15 enero 2009

Exports from Asia’s principal economies have dropped due to the financial crisis. While China and India aim at strengthening domestic demand, Japan is putting a brake on its investment plans in order to overcome the current difficulties. Latin America, for its part, will suffer a different fate, given its dependence on the sectors and the region where the majority of its foreign trade is destined.

Implications for Latin America and Chile

Consequences in Latin America are varied because of the differences in the economic models in the region’s countries. Mexico, for example, is affected by reduced US demand. The US is the principal market for its manufacturing shipments. Other nations, especially Central America, have witnessed a decline in the volume of remittances, as unemployment in America hits immigrants the hardest.

In the case of raw materials exporters, salvation lies in Asia, since India and China have plans to continue development which will require commodities. Sergio Carrasco, professor at Universidad de Chile is of this opinion. "All I can say is that both China and India will continue to buy copper and other natural resources. In fact, copper prices have risen a bit, because countries like India have been stockpiling it. This is due to its current price being fairly low. Once its price stabilizes, due to demand, the sales will level off.”

However, Jose Diaz, economist at Universidad Catolica, is less optimistic about short-term improvements in the current situation. "Chile will be affected by the decline in demand; i.e., our exports. If these countries are growing at a slower rate, then demand for our products will necessarily decrease. Should this occur, it would have a marked impact on our (export) revenues.” Thus, in both scenarios, much of Chile’s fate depends on the success of measures taken by Asian governments.

There are, however, views on the issue which are a bit more optimistic. This is the case of Xulio Rios, director of the Observatory for China Policy. The Asia specialist feels that “in the current context, Latin America has significant opportunities upon which it should capitalize. We should intensify cooperation efforts and build bridges to Asia-Pacific’s major economies. It is critical to act now, whereas they are contemplating other geographical frameworks in which to conduct business. This is being done in order to diversify their risks and stimulate exchange." Rios adds, "Now is the time to redouble integration efforts. This renewed effort would be based on a new dimension in (Latin American) ties to the Asian economies."

In the short term, the drop in demand for natural resources is definitely being felt throughout all Latin America. When combined with the financial sector’s problems that are generating unemployment, it is one of the main concerns of governments and Latin American societies at large. For now, there is little demand for capital goods (machinery and technology). This is due to firms halting expansion or modernization plans.

The paradox is that, as always happens in times of economic difficulties, consumer goods prices are down. Therefore, stores are stocked with Asian products, for example. Ion fact, many of these goods are on sale. The problem is that the consumers are less able to buy or incur debt.

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