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As Latin America swoons, the electricity sector holds on tight.

Fortnightly Magazine - November 15 2002
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Fighting to Privatize

As Latin America swoons, the electricity sector holds on tight.

The International Monetary Fund's (IMF) World Economic Outlook September 2002 gives a fragile outlook in the short-term for Latin America. In 2002, regional output contracted by 2.5 percent in the first quarter (compared with the final quarter of 2001) and is expected to fall in 2002 as a whole, according to the IMF. This contraction has caused bond spreads to widen significantly in the first half of 2002 (including sharp increases in Brazil, Ecuador, Venezuela, Argentina, and Uruguay), most currencies to weaken substantially against the U.S. dollar, and debt markets to remain closed to all but investment-grade issuers, such as Chile and Mexico.

Moreover, the economic crisis in Argentina and its spillover into neighboring countries, as well as the international market's reaction to political uncertainty in Brazil, have exposed investors to the underlying vulnerabilities that persist in the region. In particular, the IMF appears nervous about interactions between domestic political uncertainties and economic weaknesses, including high debt levels, large external financing requirements, and fragile banking systems. In the future, global economic growth probably will provide some support for regional economic expansion, but in all likelihood short-term risks still will hold the region back. The IMF believes that any return to confidence will be heavily contingent on the abatement of current political, economic, and financial market uncertainties.

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