How the shutdown and possible default affect Latin America: trade and growth in the region would take major hit

Patricia Rey Mallén – International Business Times, 10/14/2013

As the United States holds its breath waiting for the resolution on the shutdown, so does Latin America. The fiscal crisis that began two weeks ago with the closing of the U.S. government and could culminate in a U.S. debt default in a few days could have disastrous consequences for the United States’ southern neighbors, hurting the currency exchange rates and weakening the region’s growth.

The U.S., still Latin America’s largest trade partner and investor, must decide whether it will raise the debt ceiling, currently at $16.7 trillion, or suspend payments to bondholders. If that were to happen, possibly as soon as October 17, the world economy would suffer another blow, starting in Latin America and the Caribbean.

“The region is in a very complex situation due to the fiscal crisis and the shutdown,” Colombian financial analyst Juan Alberto Pineda told financial newspaper El Economista América. “The signals that are coming out [of Washington] do not look positive for Latin American exports, or an exchange rate that allows the region to compete in global trade.”

Read more…

Brazil’s bank guarantee fund eyes stricter rules as role expands

Reuters, 09/23/2013

Brazil’s deposit insurance fund, FGC, is speeding up changes to governance rules, Chairman Antonio Carlos Bueno said on Monday, adding that the privately run institution is unlikely to return to an old role of solely paying creditors of failed banks.

Since the onset of the 2008 global financial crisis, FGC has taken on a series of new responsibilities in addition to helping bankrupt banks honor their debts. The fund, which is financed by Brazil’s largest banks, now seeks to avert bank failures by providing cash-strapped lenders quick financing to continue to do business.

After helping manage a series of bank failures since 2010, FGC is considering “some specific fine-tuning of our governance model, to strengthen it,” Bueno told Reuters in an interview at the fund’s São Paulo office. “As the fund’s tasks grew, so did risks. We want to ensure the fund is ironclad.”

Read more…

Brazil refused to back new IMF aid for Greece, says billions at risk

Anna Yukhananov & Harry Papachristou – Reuters, 07/31/2013

Eleven Latin American countries refused to back an IMF move this week to keep bankrolling Greece, citing risks of non-repayment, and the Fund itself said Athens might need faster debt relief from Europe.

The abstention by Latin American states from the IMF decision was revealed by their Brazilian representative in an unusual public statement on Wednesday, highlighting growing frustration in emerging nations with Fund policy to rescue debt-laden Europeans.

“Recent developments in Greece confirm some of our worst fears,” said Paulo Nogueira Batista, Brazil’s executive director at the IMF, who also represents 10 small nations in Central and South America and the Caribbean.

Read more…

G-20 Pittsburgh Summit: Reasons to Celebrate?

Luiz Inácio Lula da Silva-Global Viewpoint, 09/22/09

The international community stared at the abyss below but managed to pull back. Should we celebrate having avoided the worst? Should we sit back and wait for the next crisis? After all, the mirage that markets are self-regulating and that financial profiteering is somehow grounded in economic logic has finally collapsed. Yet even those countries that were not wooed by the promise of easy gains found themselves unshielded from this gale-force crisis.

When G-20 leaders first met in Washington last year, no fully worked out policy proposals were available. Yet they did not let themselves get bogged down in inertia or stalemate. They were aware that the current crisis reflects structural imbalances that reach far beyond financial misdoings. Climate change and growing global competition for energy resources and markets starkly confirm what we already knew: that globalization has made us ever more dependent on each other.

Last year Brazil took the lead in defending the consolidation of the G-20 as a forum of leaders who could bring rationality to bear in managing the crisis. The time had come for a show of political will and for undertaking fundamental structural adjustments.

This explains our dismay at the reluctance of developed countries to embrace proposals for reform of the Bretton Woods institutions. There is fierce resistance to putting teeth into financial markets’ oversight mechanisms. Banks are going back to the very practices that precipitated the recent chaos. Bankers continue to be overpaid, while millions of men and women lose their jobs. Nor do we understand why industrialized countries refuse to shoulder their share of the burden when it comes to fighting global warming. They cannot delegate to developing countries tasks that are theirs alone.

Read full speech here…