September 9, 2013
THE MORE CLOSELY TIED TO AMERICA THE BETTER YOUR FUTURE:
Tide Reverses in Latin America : Brazil's Prospects Fall While Mexico's Rise as Fed Prepares to Ease Bond Buying (THOMAS CATAN, 9/09/13, WSJ)
Posted by Orrin Judd at September 9, 2013 4:58 PMBy comparison, Mexico has seen lackluster growth, partly because it has been tied to a struggling US economy It has also suffered from deep problems of its own:. Laws that banned foreign investment in energy, a dysfunctional tax code, a tattered education system and hidebound economy dominated by a handful of near-monopolies. And it suffered a surge in drug violence, deterring tourists and investors.Mexico's economic growth averaged 2.6% per year over the past decade, while its currency has slipped slightly in value.Now the shoe's on the other foot. Brazil is being punished by investors as the US Federal Reserve signals a coming wind-down of its ultra-loose money policies and as China's hunger fades for its raw materials. Brazil's currency and stocks have both sunk by more than 10% this year."Brazil has done very well over the past 10 years on the back of a commodities boom that's transferred massive wealth from China, said David Rees, emerging-markets economist at Capital Economics." That's now coming to an end. "Brazil largely squandered the bonanza, investing little in roads and other areas that could foster its development. Its government has pursued a state-led economic model, rendering many of its businesses uncompetitive abroad. And businesses and households loaded up on debt, further constraining future growth. It has developed a significant trade gap that must be financed by foreign borrowing.Meanwhile, Mexico used its lean years to overhaul its economy, revamping the country's labor laws, education system and its telecommunications system, financial and energy sectors-including a plan to open up its oil and gas sector to private investment. If completed, economists expect the changes to lift the country's growth potential at a time when Mexico's biggest trading partner, the US, kicks into higher gear.At the same time, Mexico has maintained a relatively small trade deficit that is easily financed by long-term foreign investment in companies and factories there. It isn't as dependent on fickle flows of short-term foreign cash and, as a result, has been less affected by the turmoil roiling Brazil and other emerging markets in recent weeks.