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What's NewS Issue 4 June/ July 2000
The knock-on effect set off by the Asian flu first hit Eastern Europe. And as it
came the full circle around the world, the Latin American countries which had
seemed so full of potential finally succumbed. A series of climatic reversals - el
nino and la niha - also took their toll on agricultural ouput in 1998 and 1999.
But the worst appears to be over. As the region begins to show strong signs of
recovery, we asked our people in Chile, Argentina and Mexico to update you on
the long and challenging path to economie stability.
nfi
Driving growth
Unique strength
Complex picture
With one of the strongest economies
in Latin America in the early to
mid 1990s, Chile had become
accustomed to its position as the 'golden
child' of the region, its market often
compared to those of the Asian Tigers.
The economy had enjoyed steady annual
growth of 7% in the seven years
preceding the crisis which hit in 1998.
And, Chile hadn't been through a
recession in over 20 years. But economie
upheavals in Asia and major trading
partner Brazil dimmed Chile's bright
prospects. In 1999, the economy shrunk
by 12% and suffered negative growth of
5%. Commodity prices plummeted, and
copper, Chile's main
export, lost half its
market value. These
problems were
exacerbated by losses in
the agricultural sector
as a result of el nino
and la nina, which
brought excessive rain
followed by severe
draught.
Chile's Willem Wagner
Argentina. A sec-
ond driver of market
recovery is the export
of salmon, a relatively
new industry. In the
last 20 years, salmon
has become Chile's second
largest export - and is ex-
pected to eventually become
the largest, bypassing fruit.
Lastly is an increased in
terest from several F&A
companies to undergo
major structural adjust-
ments. 'Companies had
enjoyed years of steady
growth before the
crisis came,' explains
Wagner. 'Now, they're getting back
on their feet and want to make
some changes. Several companies,
primarily in F&A, are looking for
business-oriented restructuring.
This is matched by increased inter
est in M&A. So, our team has a lot
of work to do. We're busy helping
our customers investigate and im-
plement these initiatives.'
But now, economie recovery is slowly
gaining ground in Chile. With the help of
a booming wine market, an expansion in
salmon cultivation and a restructuring of
several major companies, stability is com
ing back to the economy. 'The wine indus
try is doing extremely well,' says Willem
Wagner, general manager in Santiago.
'We're working with a number of cus
tomers to expand investments in that
area.' In July, the future prospect of the
Chilean wine market will be a hot topic at
the International Wine seminar, an event
sponsored by Rabobank Chile and
limited the export market. This is of
course slowing down recovery.' Confi-
dence in the market is rising, but is still
quite cautious - and tends to be a reflec-
tion of confidence levels in other develop-
ing markets rather than Chile's. 'Foreign
investment hasn't really recovered yet be-
cause investors are still waiting for signs
of a sustained recovery. The economy is
growing at a rate that is slower than the
pre-crisis level. And, there is still a lot of
excess capacity in production areas. But,
the government is liberali/.ing investment
laws and keeping exchange rates low, so
we are predicting a substantial increase
in investment in the near future.'
Despite these obstacles, there
are still many reasons to be op-
timistic - unemployment is down
to 8%, inflation is under control at
3%, and interest rates are low. 'We're
definitely heading down the right road,'
says Wagner. 'While Chile shares many
characteristics with its neighbours, it also
has its unique strengths - like entrepre-
neurial spirit. There's a strong work ethic,
high level of education and a genuine in
terest in business. Many Chileans develop
businesses and investments in addition to
their daily jobs. This is the spirit that will
drive Chile to economie stability - it's only
a matter of time.'
While these factors are contributing to
growth, there are still several obstacles
that need to be overcome. The Chilean
market is largely dependent on interna
tional trade - generating 40% of GNP, ex-
ports go primarily to Europe, the US, and
Asia. And in Latin America, Chile's econ
omy is very much linked to Brazil's. 'Chile
is very susceptible to changes in its export
markets,' explains Wagner. 'The devalua-
tions of the euro and Brazil's real, for
example, have had negative effects on
purchasing power and therefore have
On July 6, the International Wine
Seminar was held in Santiago. Orga-
nized by our offices in Santiago and
Buenos Aires, CEOs of major inter
national wineries and regional
clients attended to discuss the future
potential of new world wine. Look
for a full briefing of the event in the
next issue of What's NewS.
