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A region braces for the US slowdown

For the first time in almost a decade Latin America’s faithful companion – a strong US economy – will be absent this year. It’s an eventuality that the finance ministers and central bank governors of Latin America have been worrying about for years. They have fretted over how their economies will respond to reduced demand from American importers and how their finances might be disrupted by collapsing confidence and increased risk-aversion in the US. Yet with America’s astonishing growth finally appearing to falter, private-sector capital has flowed abundantly since the start of 2001. Perhaps investors into the region are just taking a short-term view on US interest rates. Political risks remain the medium-term worry.

Mohammed El-Erian

The US Federal Reserve's aggressive easing of US interest rates this year has greatly improved the reception of Latin American issuers in international bond markets.

Investors had snapped up more than $6.2 billion of Latin debt issuance by late February, and were eagerly awaiting more.

If anything, a slowdown in US growth may even be a blessing in disguise, given the nature of the most recent near-crisis in Latin America. Lower interest rates and a weaker dollar should give a much-needed boost to Argentina, whose economic stagnation continues to be the single-biggest threat to the region, even after a $40 billion rescue package.

"You will see another solid year simply because fundamentals are strong and remain on an improving trend," says Mohammed El-Erian, head of emerging market investment for Pimco, one of the biggest dedicated and crossover global portfolio investors in Latin America.

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