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 The winds of recession are alarming the world. Should Latin American entrepreneurs take their assets out and put them in more stable economies?

The winds of recession are alarming the world. Should Latin American entrepreneurs take their assets out and put them in more stable economies?

Table of content

In this post we answer several questions that are asked in the midst of the economic crisis that has resulted in the escalation of the dollar in Latin America. Do leftist governments have anything to do with this crisis?

The tensions in the world are increasing thanks to the inflationary escalation caused by the pandemic and that left cracked consequences, not only in the health of millions of people, but also in the economy. Added to this phenomenon is the war between Russia and Ukraine, which caused economic growth rates, which had been constantly on the rise, to drop to the point of causing very poor forecasts in the Latin American region. Let's see some data:

Perspectivas Económicas Regionales para el Hemisferio Occidental

Do leftist governments have anything to do with this phenomenon?

The political map, in the Latin American and Caribbean region, is tilting more and more to the left. Manuel López Obrador in Mexico (2018), Gabriel Boric in Chile (2021), Alberto Fernánez in Argentina (2019), Xiomara Castro in Honduras (2021), Pedro Castillo in Peru (2021), Nayib Bukele in El Salvador (2019), Luis Abinader in the Dominican Republic (2020) and the most recently elected president of Colombia, Gustavo Petro (2022), represent this new wave of leftists taking power in the region.

Not to mention the polls that give Luiz Inácio Lula da Silva as the favorite in Brazil. A country where the right wing has governed, headed by Jair Bolsonaro and what the figures say, will be defeated by the former president in the elections that will take place in October 2022.

Unlike the first wave of the left in the region, between 2000 and 2010, this one seems to be stronger, and, naturally, more fraught with challenges, among others, due to the rise in the dollar and the economic crisis that is already being felt in some economies of the region.

Regarding the devaluation of the currency, three countries are facing a crisis that is taking its toll on institutions and social classes. First, Argentina, the most affected by a series of economic crises that have unleashed uncertainty and led investors and businessmen to take refuge in the dollar as a viable option after mistrust of the Argentine peso, in addition to that, the political crisis that faces President Alberto Fernánez.

Second, Chile, a country that marked, momentarily, on July 6, 1,000 pesos per dollar, a crisis that is on the rise, says President Boric, due to the drop in copper prices; and finally Colombia, a country that is experiencing an escalation in the price of the dollar that has to do with external factors, as we have already said, but also because of the decisions that Gustavo Petro may make in economic matters, for example, of the rates of taxation on companies and individuals, and a tax reform that he has been proposing since his campaign for the presidency.

It is worth clarifying that in the 2000s, leftist candidates won decisive presidential elections, Hugo Chávez, in Venezuela; Lula da Silva, in Brazil; Nestor Kirchner, in Argentina; Michellle Bachelet, in Chile; José Mujica, in Uruguay; Evo Morales, in Bolivia; Rafael Correa, in Ecuador, among others.

The new Colombian left

Let's talk about the Colombian case, Gustavo Petro, a progressive who leans towards leftist ideas and who was elected president after defeating Rodolfo Hernandez in the elections. His vice-presidential formula, Francia Márquez, a social leader who, like him, will take office on August 7. A fact, cataloged by many, as historical, since it is the first time that a leftist president takes power in the coffee country.

This fact has caused suspicion among industrialists who see the president-elect as a possible threat, especially due to the decisions that the government may take on an imminent tax reform and the tax rate, which he has publicly said will change; so he made it known in the daily portfolio while he was still a candidate: "In a highly unequal and economically rickety country, I see no other alternative than the 4,000 largest fortunes in the country paying taxes", those tax rates will be directed, he said, not on their productive companies, but on their unproductive assets: dividends, transfers abroad and tax havens.

The rise of the Colombian peso, which has already reached its historical maximum -$4,600-. it is expected to continue rising, since it has not yet found a ceiling. Some industrialists, it must be said, have benefited from this historical fact: those who export benefit from the tax rate, but those who import must pay more for raw materials.

What to do to face this crisis?

One of the best alternatives to face this crisis is the internationalization of your business or investment abroad, and the United States presents itself as an excellent opportunity, because although some experts speak of an economic recession, the strength of the US economy has been able to overcome each of these crises.

A good indicator to argue this thesis is the interest rate that has fluctuated and has been able to overcome each of these economic imbalances, from the 2008 crisis to the one caused by the pandemic. Here are some figures that shed light and explain the rapid recovery of the world's largest economy:
Diego Prieto
Press Officer

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