KPMG: The Economic Growth of South America

In a report issued by KPMG, the economic growth of South America seems just short of miraculous. How has this been accomplished, and what does this mean for direct investments from foreign investors? Argentina's privatization program that included a threefold policy of currency convertibility, trade liberalization and privatization was initiated to offset a low-growth high-inflation economy. Although semi-successful, the program has had serious setbacks due to the deep recession of 2001-2002. Telecommunications and electrical investments have suffered some of the most difficult obstacles due to government regulations and reduced industrial and consumer demands, labor unions, and taxes. Despite these setbacks, the last year saw an exceptional foreign direct investment increase. Brazil happens to be one of the largest and most dynamic economies in South America, and even though the investment risk is high, there is an increasing attraction in Brazil for investors due simply to Brazil's size, growth rate, and the steady economic improvement trend. The pro-business environment of Brazil's economy is a direct influence on foreign investment, and the accomplishments of Brazil's President Lula to establish a business friendly privatization program and meet targets established by the International Monetary Fund have created a favorable investment environment. Chile, while small, offers the most stable and predictable economy of the ABC economies, and is often compared to a European economy in terms of investment risk. The pro-business environment, coupled with government policy that has helped to create several decades of good macroeconomic and microeconomic management have created a model for economic reform in the whole of South America. The country is very dependent upon and open to international trade, yet because of the countries size, can never be taken seriously as a manufacturing center. The country's small size and geographical isolation limits investment opportunity. By Rene' V. Richards, Staff Writer, Big4.com, July 2006