U.S. Fiscal Issues Effecting Latin America

Latin America News – The fiscal cliff named in the U.S. may drag down the rest of Latin America whose economies are closely linked to the North America.

The White House and Republicans try to resolve differences over the U.S. tax revenues and spending cuts before new taxes are in effect for all citizens and national spending cuts, according to the most analysts, would create a new recession.

The impact would affect Latin America export sectors, investment and tourism, among others, that have seen good growth in the region in recent years.

The consequence for Latin America countries that have economic relations with the United States is that this country will buy less abroad because there will be less demand.
Not all countries have such a close relationship with the U.S., but overall the region will be impacted, including those who have seen healthy performances for the past few years.

Mexico and Central America and the Caribbean would be most directly impacted because they have more intense relationships. Those countries that have free trade agreements (FTAs) as Chile, Colombia and Peru are economies that managed to grow between 4 and 5% in 2012.

In terms of the FTA, the impact will be particularly noticeable with countries recently signed bilateral agreements with Washington as Colombia and Panama.

Panama has been exceptional in 2012 because its growth was over 10%.However, its economy is very close to the U.S. and has the dollar as its currency. Monetary policy in Washington would affect Panama like other countries that have adopted the dollar as its national currency like Ecuador and El Salvador.

Argentina and Brazil, the largest economies in South America, that have more relations with Europe and China compared to the USA, had spectacular growth this past year.

The absence of the U.S. market for Latin American exports deepens their crisis. Moreover, medium-sized economies that grew well as Chile, Peru, Colombia, Costa Rica, Dominican Republic, will suffer as well.

In general the immediate impact of the U.S. recession would be on trade and exports but there are other items that also feel the effect in the medium and long term.

America is still a major source of investment for the South American economies as is in the case of Mexico, Central America and the Caribbean. These investments are in the mining, and banking services, as belts tighten for large companies so does expansion dollars for development, R&D in many of these areas.

As U.S. citizen also tighten the belt, burdened by higher taxes commencing in January 2013. The traditional holiday resorts and places of interest in Latin America will no longer be on the agenda so that tourism, which is revenue engine of several countries in the region, would see terrible consequences.

Although there is the possibility of a compromise between President Barack Obama and Republican lawmakers, is presumed to be very different than expected.

Whatever agreement is met, the debate will continue throughout the year, warn financial advisors.

China and other growing economies will stabilize and lighten the impact of the fiscal cliff effects on Latin America as well Latin Americas powerful growing middle class has far reaching potential over the next decade and many economic experts predict that Latin America will become the largest economic block on globe over the next 30 years.

The Costa Rica News (TCRN)
San Jose Costa Rica

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