Lower debt levels and comparatively low rates of bad loans mean that even the poorer Latin American countries are faring better than their developed counterparts when it comes to exposure to the financial crisis. Writer Charles Piggott.
Three of the 10 economies in the world that are least exposed to potential disaster are in Latin America. According to The Banker’s World Financial Health Index – which analyses the financial leverage and economic health of 184 economies – Chile (ranked at six), Bolivia (eight) and Peru (10) are all least likely to be affected by the financial crisis.
These smaller economies may be poor in comparison to their richer neighbours, but relative to their wealth, they have far lower levels of debt. Six central and Latin American countries rank in the top 25 and only two countries (Suriname and Belize) rank outside the top 100.
Chile ranks as the healthiest Latin economy, with non-performing loans at just 0.8% and bank provisions equal to 210% of bad loans. Although Chile’s debt is rising, levels of external debt remain extremely low compared to GDP.
Bolivia, which ranks second, may be Latin America’s poorest country outside central America, but is also likely to be one of the countries least affected by the crisis. Bolivia’s GDP per capita remains painfully low at $1888, but the country’s external debt is also low at just $486 per capita. Bolivia also has a trade surplus equal to about 12% of its annual GDP. By comparison, the US has GDP per capita of $47,002, external debt of $40,319 per capita and a current account deficit of nearly 5% of annual GDP.
Furthermore, the US banking sector has made loans equal to 230% of US GDP, whereas in most Latin American banks, lending remains less than 50% of GDP. (In Peru, bank lending is equal to just 15% of GDP.) Only Brazil, Chile and Panama have levels of bank lending approaching anything like that of developed countries at 81.7%, 83.5% and 90.8%, respectively.
Latin America’s powerhouse economies of Argentina, Mexico and Brazil, however, are more dependent on credit and therefore more heavily exposed to the crisis than the region’s smaller economies.
Argentina ranks at 40 in the World Financial Health Ranking, Mexico at 69 and Brazil at 77. According to The Banker’s analysis, Latin America’s three largest economies will eventually be hit harder by the crisis than the US economy.
METHODOLOGY
The Banker’s Latin Financial Health Index rated countries’ ability to weather the financial and economic crisis. Some 26 indicators were used to rate countries’ economic prospects, total indebtedness, banking leverage and government finances. Latin American countries were ranked by each of the following 26 indicators against all 184 countries for which The Banker has data (see World Financial Health Index, The Banker, January 2009). The top ranked country in each category received the maximum score (in brackets) and the worst ranked country scored zero. All countries in between were awarded points on a pro-rata basis. Where data was unavailable, countries received a score of zero. Global rankings shown in italics are taken from January’s World Financial Health index. Although this month’s ranking of Latin American countries takes account of recent International Monetary Fund revisions for some countries’ 2009 gross domestic product (GDP) growth estimates, the global rankings remain as calculated in early January.
Economic prospects (400)
(150) GDP growth forecast, 2009 (IMF, World Economic Outlook [WEO], November 2008, including recent revisions) (75) GDP/capita forecast, 2008 (IMF, WEO, November 2008) (75) GDP/capita forecast, 2009 (IMF, WEO, November 2008) (25) Unemployment, % (CIA, World Factbook 2008)(25) Net national savings rates, % of GNI, (World Bank, World Development Indicators 2008)(15) Current account balance forecast, 2008, % GDP (IMF, WEO, November 2008)(10) Current account balance forecast, 2009, % GDP (IMF, WEO, November 2008)(10) FDI Inflow, 2007, % GDP (Unctad, FDI Stat, November 2008)(5) FDI Inflow, 2007 per capita (Unctad, FDI Stat, November 2008)(5) FDI stock, 2007, % GDP (Unctad, FDI Stat, November 2008) (5) FDI stock, 2007 per capita (Unctad, FDI Stat, November 2008)
Indebtedness (200)
(100) External Debt, % GDP (CIA, World Factbook 2008)(50) Debt, per capita (CIA, World Factbook 2008)(50) Gross External Debt Position, % increase Q2 2007 to Q2 2008 (World Bank, November 2008)
Bank leverage (200)
(100) Bank regulatory capital to risk-weighted assets (IMF, Global Financial Stability Report June 2008)(25) Bank capital to assets (IMF, Global Financial Stability Report June 2008; World Bank, World Development Indicators 2008)(25) Non-performing bank loans (IMF, Global Financial Stability Report June 2008)(25) Bank provisions/non-performing loans, %, (IMF, Global Financial Stability Report June 2008)(25) Domestic credit provided by the bank sector (World Bank, World Development Indicators 2008)
Government finances (200)
(50) Central government cash surplus or deficit (World Bank, World Development Indicators 2008)(50) Central government debt interest, % of revenue (World Bank, World Development Indicators 2008)(50) Public debt, % GDP (CIA, World Factbook 2008)(20) Reserves of foreign exchange and gold, % of imports (CIA, World Factbook 2008)(15) Reserves of foreign exchange and gold, % GDP (CIA, World Factbook 2008/IMF; WEO, November 2008)(15) Reserves of foreign exchange and gold, per capita (CIA, World Factbook 2008)
* Where dates are unspecified, the figures are the latest available
