cobrechile.jpgLatin American pensions have lost between 15 to 20 percent of their value. Income from the exportation of raw materials is shrinking. SME’s are having difficulties accessing new markets. Layoffs are occurring left and right. In spite of governmental efforts, the world crisis will continue to swallow up Latin America’s achievements.

(From Santiago, Chile) THE GLOBAL EXPECTATION for the crisis unleashed in the heart of the United States, added to the elections that some analysts are describing as historic because of the emergence of Barack Obama, as opposed to a proponent of the harsh Republican line, has finance ministers and leaders around the world on the edge of their seats, just waiting to see what happens. Figures like Joe the Plumber in the United States, the Peruvian Average Guy and Miss Juanita in Chile, are emerging as representatives of those ordinary men and women who still do not clearly grasp the current and forthcoming effects of the crisis, which are often confused with their own local uncertainties. “Chávez’s most recent outburst in the media has been a threat to expropriate the banks”

Days have passed since the first appearance of rumors that the collapse of the mortgage market in the United States could be followed by others: a reduction in the number of consumption loans being paid off – with the consequent decrease in bank and financier liquidity – in turn causing its own breaches of obligations.

Similarly, we could see credit card payments slow down and cause analogous effects. Some people also anticipate that retail providers of food, clothing and medicine could feel an impact in the form of their clients’ payments, increasing credit days on their financial statement indicators.

SAVINGS GOING UP AND DOWN

Chávez – strangely enough – has more or less stuck to merely observing, with a slight interjection here and there: “In Chile, the drop in the international price of copper has sharply reduced the contribution margins of the large mining industry” chastising, as always, what is at this point his classic nemesis. His most recent outburst in the media has been a threat to expropriate the banks.

In Argentina, the nationalization of the Pension and Retirement Plan Administration is driving the investors and operators of these businesses crazy, and incidentally, with a contained panic, through the means of payment offered by Lady Fernández de Kirchner; the trans-Andean Treasury bonds are losing status daily due to the rising risk reclassification by international stockbrokers.

In Chile, the drop in the international price of its main source of revenue, copper, has sharply reduced the contribution margins of the large mining industry, even that of the national Copper Corporation of Chile, one of the most important mining companies in the world. “The possibility of maintaining average salaries has been seriously decreased, which will also lead to a reduction in pensions at the end of one’s working career”

As such, every Chilean’s savings has been going through some serious ups-and-downs that would have been inconceivable several months ago. As a consequence of the mysterious Chinese growth phenomenon of today, these resources – accumulated with effort and fiscal discipline, and a result of the copper market’s recent prosperity – are invested in portfolios of diverse risks and yields, in multiple markets around the world. Those that have been invested in companies and banks associated with countries that have suffered less, like the Netherlands and Scandinavia, seem to be in a safe place, given the current circumstances. Businesses’ bond and fixed income investments will depend on what happens to these companies. However, the investments in stock-market values, around 20 per cent of the sovereign portfolio, remain a mystery.

SOW… IN ORDER TO HARVEST? THE IMPACT ON THE PENSIONS

Pensions and retirement funds in Latin-American countries, “Chile, Peru, and Uruguay are experiencing weekly fluctuations (both positive and negative) in the price of fuel” with variations of a couple points, have lost 15 to 20 percent of their present value as a result of this brief but harsh crisis. This will result in the delay of the decision to retire of tens of thousands of people, who appear to be condemned to toil in the labor market for several more years.

In addition to the fact that the general unemployment of the region is not tapering off – and less so now – the possibility of maintaining average salaries has been seriously decreased, which will also lead to a reduction in pensions at the end of one’s working career.

“Bread requires more and more of people’s stagnant paychecks, just so families can be provided with the minimum amount of nourishment required” On top of this, nations like Chile, Peru, and Uruguay are experiencing weekly fluctuations (both positive and negative) in the price of fuel, and gas, diesel and paraffin are highly consumed in the region. The net effect of these ups-and-downs is, lamentably, on the rise.

Latin-American governments, in keeping with their duty as States, are launching great efforts. First of all, they are doing what they can to keep people and the markets calm. Secondly, they are trying to avoid the spread of rumors that could bring inflation to such a stage where it could spark both a purchasing power and price crisis. Also, governments are revising their fiscal budgets to help the less fortunate, with measures that will reduce the impact on the price of food staples, and at least maintain health services and keep placement in housing projects from slowing down too much.

GREAT OFFERS… AND GREAT LAYOFFS

Small and medium enterprises in Latin America, always on the verge of illiquidity and striving to maintain a minimal solvency, and with an even greater difficulty accessing new and better markets, are simply trying to stay afloat and ride out the storm – even when the nightmarish cost, that their business be seized, is an eventual cessation of operations. In view of the decline in demand – a product of unemployment and an increase in loan prices – even the big real estate and construction enterprises are, on one hand, beginning to think about creating big offers to reduce stock, and on the other hand, starting to fire workers, cutting resources and increasing the time spent not working, as well as flat-out suspending new projects.

Perhaps the harshest thing is that purchasing bread – a highly consumed foodstuff in Latin America – requires more and more of people’s stagnant paychecks … just so families can be provided with the minimum amount of nourishment required. We cannot state that it will continue, but we can be sure that the eye of the hurricane of the crisis is still spinning, swallowing up everything that has been achieved and spitting out scraps in all directions with its centrifugal force.