However, trade surpluses, fiscal discipline, low inflation, large reserves and appreciating currencies are the norm. Long-term stable institutional investment is flowing in and domestic savings are also being channelled more efficiently to investment projects by rapidly growing local debt and equity markets.
The core economies in the region, Brazil and Mexico, are not having second thoughts about the new orthodoxy, notwithstanding the details of their own distinctive political landscapes (Brazil must recognise that it really does have low inflation and needs to cut interest rates further). Argentina, though still coping with the legacy of default and devaluation in 2001, is booming and maintaining fiscal balance - though there remain risks to this state of affairs, not least if growth is curbed later in the year by a possible energy crisis.
For Bolivia and Ecuador the jury is still out. One should perhaps only ever judge politicians, especially populist ones, by actions, and never by words alone.
Arguably only one country’s government in the region, Venezuela’s, can afford to gamble with the economic model and have a reasonable chance of winning votes consistently as a result. And a gamble it is – Hugo Chavez has clearly benefited the urban poor and been rewarded with re-election. Maybe this can be replicated for many years, but it is at a conscious cost to private sector interests and investment.
Currently the economy is growing too fast, and needs slowing down before external imbalance can be addressed – it will be interesting to see if the political mood changes should transfers to the poor be reduced in the upcoming period of greater fiscal austerity.
Whatever the impact of Mr Chavez’s third term on physical private sector assets, sovereign default risk is separate from this. As a net creditor with strong economic incentives to remain creditworthy, and with minimal capacity to pay risk, only an unlikely and extreme bout of self-wounding ideology stands to harm sovereign bond-holders. Ecuador’s
new President Rafael Correa may be finding this out for himself but Mr Chavez already knows it.
Jerome Booth, is lead researcher at Ashmore Investment Management.
