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.”

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Mexico swoons and Brazil rallies in response to US shutdown

Stephen Kurczy – The Christian Science Monitor, 10/08/2013

The US government shutdown is rippling across Latin America, seesawing regional economies as markets and analysts take toll of the immediate and long-term impacts from the crisis in Washington.

Mexico and Brazil, the two largest economies in Latin America, saw their currencies swing in opposite directions last week as the US inched closer to a default. The Mexican peso fell to a month-low on concerns over weakened US demand for Mexican goods, while the Brazilian real rallied on speculation that the shutdown would prolong the US Federal Reserve’s stimulus program that has pumped cheap dollars into emerging markets.

The divergence underscores the greater reliance in Mexico on US economic growth, which is estimated to lose up to 0.4 percentage points for every week of the shutdown. Mexico sends 78 percent of all exports north of the border, while Brazil sends just 11 percent of exports to the US.

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