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Pacific Alliance: not as solid as depicted by its members

Pacific Alliance: not as solid as depicted by its members

Posted by PanamericanWorld on February 25, 2014

During the recent Pacific Alliance (PA) meeting, when its members agreed to lift 92% of the barriers on traded products, Colombian President Juan Manuel Santos spread optimism about the economic strength of the four countries that will face shocks and volatility from abroad. The alliance celebrated strong growth figures, along with high investment levels, a satisfying fiscal balance and abundant international reserves.

The Colombian government, in fact, estimates the PA will contribute +0.7% to the region’s GDP growth this year, +1.4% to the expansion of foreign direct investment inflows and 40,000 new high quality jobs. Yet, local analysts disagree with those forecasts, since similar statements were made in 2007 and Colombia’s GDP growth plunged from +6.9% to +1.7%. Along the same lines, Colombia has been stricken this year with the crunch of the US Federal Reserve’s (Fed) monetary stimulus. Emerging markets are now threatened as the dollar strengthens, persuading foreign investors to repatriate their capital. The Fed’s decision also affected Colombia’s important exported commodities such as coal, coffee and ferronickel.

The Colombia Stock Exchange’s liquidity index (Colcap) has decreased (19.95)% thus far this year due to instability. The Latin American Integrated Market (Mila), comprised of Chile, Colombia and Peru (and soon Mexico), has seen a (31.85)% drop in the same period. Mexico depicts itself as the only bullish economy strong enough to pull growth in the alliance. In Colombia, infrastructure is a major hope, although tied to foreign contractors.

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