South America has been a special part of my life for four decades. I have lived many years in Brasil and Peru. I am married to an incredible lady from Argentina. I want to share South America with you.
Britain voted “out”, sterling collapsed, the dollar rose, gold rocketed, stocks lost $3trn…and emerging markets? After a sharp hit, most ended the week much where they had begun. Why? Not because nothing had happened on an island far far away. Rather, because of the premise that the extraordinary uncertainty generated by Britons voting to leave the European Union means the Fed may now keep US rates lower for longer.
Perhaps it will. Either way, Mexico is taking no chances that the Fed will stay pat. On Wednesday, it hiked its benchmark interest rate by 50 basis points to 4.25 per cent to shore up the peso. That makes it the first central bank to act in such a way in the post-Brexit volatility and, so far, the approach seems to be working. The peso recovered slightly, although it is still on the floor. Remarkably, in real terms the Mexican peso has not been this weak since the Tequila crisis of the mid-90s.
What other effects might Brexit have on Latin America? The honest answer is: nobody knows. Nobody in Britain knows what is going to happen in Britain: there is no government, no opposition and no plan. So one can speculate endlessly. (Will it help or hinder the rising number of Brazilian debt workouts, following Oi’s bankruptcy? Hmm. Will it prompt the Colombian government to reassess the risks of its own peace process referendum? Perhaps. Will it fire up Donald Trump even more, putting pressure on the Mexican peso? It already has. More gratuitously, what does it say about the British political class generally? Que se vayan todos!)
Usefully, Chris Sabatini lays out some immediate concrete Brexit impacts on Latin America. In essence: some English Commonwealth countries in the Caribbean may lose their special access to the EU market; Mercosur’s trade renewed trade talks with the EU will get pushed way down Brussels’s list of priorities; and the prospect of John Bull puffing out his chest will surely knock Argentine claims to the Falklands/Malvinas islands into “fugedaboutit” territory, at least for now.
Quote of the week
“Over the next year to 18 months we will probably see filings of the same size as Oi if not even bigger” - Fábio Rosas, a specialist in debt restructuring at Brazilian law firm Souza, Cescon, Barrieu & Flesch Advogados