Spain and Latin America: end of year report card

(Madrid, Dec. 19, 2012).- CAF –development bank of Latin America– recently hosted a breakfast seminar in Madrid entitled “Spain and Latin America: End of year report card.” The opening presentation was led by Guillermo Fernández de Soto, CAF’s representative for Europe, who presented the strategy of CAF’s Madrid office and the challenges CAF faces now that the bank has established a European presence.

Fernández de Soto highlighted CAF’s strengthening relationship with public institutions in Spain, Portugal and the rest of Europe, earning the bank recognition as a strategic partner in Latin America; the support to the private sector in response to the needs of Spanish companies investing in Latin America with an emphasis on small and medium-sized enterprises; and the promotion of partnerships with academic institutions and think tanks to generate a broader understanding of the interests of Latin America and CAF.

José Carlos Díez, chief economist at Intermoney, discussed “The Euro Zone and Spain: Good Bye 2012, Waiting for 2013,” noting that the euro crisis has spread out of the financial system and is affecting the real economy, causing a recession in the euro zone. The outlook for 2013 is that the situation is likely to worsen. A decline in net employment began in Germany in September, with retail sales dropping sharply compared to the spring and with falling industrial production since the summer. (Net employment one of the three main indicators used by the National Bureau of Economic Research to determine a recession in the U.S.)

According to Díez, Spain will end the year with declines in employment and consumer spending comparable to those of late 2008 following the bankruptcy of Lehman Brothers, and it’s not clear in the outlook for 2013 when this depression will hit the bottom.

“A comparison with the US, where GDP, employment, credit and sales and house prices are rising, confirms that economic policy errors in Europe are the cause for recession,” Díez said. “There is still room to react but so far there is no fiscal and monetary stimulus in the euro zone, nor is it expected in the short term.”

Meanwhile, Germán Ríos, CAF director of strategic affairs, presented the situation of Latin America in the global context and the region’s economic prospects, arguing that despite the global economic crisis Latin America, has had a good year and today is part of the solution for the global crisis, not its cause, as in past decades. According to Ríos, the main risks to the region are a deepening of the European crisis and a hard landing for the Chinese economy. However, thanks to sound macroeconomic policies and favorable external and fiscal balances, the region has leeway to mitigate those risks.

Ríos said that, even though these are good times for the region, there is no room for complacency. Latin America needs to undertake a series for structural reforms, especially the transformation of the productive sector in order to avoid what has been called "recommoditization” or a return to a high concentration in the production of commodities. The outlook for Latin America in 2013 is positive and there will be business opportunities that Spanish companies can take advantage of, with CAF’s support.

In his concluding remarks, Fernández de Soto noted the role of CAF is reflected in three dimensions: expanding the geographical presence of the institution; promoting partnerships for the generation of data and research; and acting as a bridge for fundraising and generating trade and investment opportunities.

He pointed out that CAF is committed to expanding support to Spanish companies and banks that start businesses in Latin America, as well as Latin American companies wishing to expand operations in Spain or other European markets.