Latin America Financial and economic forecast in the short andmedium run, instability and insecurity
It is the role ofthe government with all stakeholders to ensure that financial andeconomic forecast are embraced so that the markets are not vulnerabledue to instability and insecurity. Financial institutions andimmerging of entrepreneurs who conduct investments plays a major rolein ensuring that the economy stabilizes. This is because income isgenerated and thus possible to carry development agendas thatstabilize the economy.
Howvulnerable are Latin American markets to suffer instability in theshort and medium run?
The Latin Americanmarkets are vulnerable, and they suffer instability in the short andmedium run based on the fact that most of Latin American firmsunderestimate the opportunity of exporting products. The firms dependon the domestic market and in the short run the productivity isreduced significantly hence profitability is low and thus the marketsexperience instability (Ricardo, 2015). By exporting products to thedesired foreign countries, implies that the exported products aregoing to be profitable than the domestic market and thus attainmentof revenue that boost the economy.
Exporting of theproducts implies that the Latin American have to be more productiveso that the market instability can be solved. For instance, when theproducts are exported it implies that revenue is generated, and thusthe Gross Domestic Product increases significantly thereby improvingthe market instability (Casacuberta et al, 2009). To ascertain thatLatin American stops suffering from market instability the domesticmarket should be embraced as well as exportation of products toforeign countries. The domestic market and exportation should beinterwoven together so that market instability can be resolved. Theexportation of the products to foreign countries plays an importantrole in ensuring that international standards are met, and thus thelocal companies in the Latin America are competitive with the foreignmarkets.
The fluctuation ofmarket stocks causes depression that negatively affects the stabilityof the economy. Latin American has to ensure that market fluctuationdoes not occur by making sure that income tax and interest rates arecut to respond and solve issues of depression. The governmenttogether with financial institutions should make sure that income taxand interest rates are cut. The Latin American Gross Domestic Producthas been deteriorating. The gross domestic product has beenincreasing and sometimes decreasing. For instance, in 2014 it was 0.6percent in the first quarter of the year, the second quarter thegross domestic product increased 0.1 percent and in the third andlast quarter it decreased 0.3 percent (Lopez and Shankar, 2011).
The next factor thatcan make Latin American market instable to be solved is enhancingmarket liberation that plays an important role in making sure thatbusinesses have the platform where they operate and are regulated bythe forces of the market (Dumrauf, 2012). Market liberation has madethe United States economy to grow based on the fact that theireconomy is innovation-driven as compared to the Latin Americanseconomy where they do not use the innovation –driven mechanism toliberate their economy. Innovation increases competition in themarket based on the fact that unique products that are exported leadto stabilization of the market due to the demand of the products.
The Latin Americanmarkets suffer instability in the short and medium run due to thehigh dollarization level and corruption in the financial systems.Based on the fact that Latin American emphasizes on the dollarizationthe economic crisis has resulted making the economy unstable (Garcia,2001). The dollar usually circulates in the local market and thus thefinancial systems have the risk of solvency and liquidity which makesthe market economy to be unstable. The corruption rate in the LatinAmerican countries additionally, makes the market economy to beunstable since it affects the sharing of resources and thus theeconomy is not boosted. For instance, in the case of Brazil, that isranked position 69 has a rate of 43 percent in terms of corruption.Cuba has 46 percent, Peru has 38 percent, and Chile has 71 percentamong other countries. Due to the high corruption rate in the LatinAmerican countries it is obvious that public resources are misusedwhile others are stolen and thus the economy cannot grow as it isprojected. To ensure that Latin American does not suffer marketinstability either in short and medium run the financial systems haveto shun the high dollarization and corruption levels.
LatinAmerica is contemplating its future again with insecurity. Why isthis case?
Since the immergingmarket have not been affected by the recent financial marketsturmoil, as in the case of developed economies, have been affected. Latin American is contemplating it future with insecurity because theeconomy is deteriorating and the current states indicate that theeconomy will remain subdued. The gross domestic product of LatinAmerican and Caribbean in the year 2013 was 2/3/4 percent while in2012 it was 4/1/2an indication that the gross domestic product isdeteriorating as time goes (Anaya, 2003). This implies that the LatinAmerican have to contemplate the future with insecurity since thetrend is continuing and can reach to appoint where the financialmarket will be affected negatively leading to bankrupt of the LatinAmerican.
The Latin Americanhas to contemplate for the future insecurity because there areconstraints on the supply and the demand for the products. Forinstance, the financial condition has a lot of challenges, and thedomestic demand is becoming weaker now and then (OECD. Org, 2015). InBrazil the financial market is still subdued because Brazil togetherwith other Latin America has a weaker business strategy that does nothave confidence in the private investments. Latin American countrieseconomy is projected to decrease while others will remain stagnant.For example, Brazil, Columbia, and Peru will deteriorate regardinggrowth while Mexico is estimated to improve slightly and thus theLatin American countries have to contemplate future insecurity due topoor growth rates of the economy.
Violence and crimeare a global challenge worldwide, and it causes a lot of challenge tothe economy. Investors and immerging entrepreneurs need a favorableenvironment that is free from violence and crime, and thus there is apossibility of Latin America countries to suffer market instability.Due to the high number of cases of violence and crime Latin Americais contemplating it future with insecurity and thus it is importantto deal with such cases for the economy to be secure.
The politicalinstability causes the market economy to be unstable. For example, inBrazil which is known for the exportation of agricultural products itis important to ensure that political stability is embraced. At themoment, the opposition is determined to investigate PresidentRousseff so that he can cease to be the president which will causesinsecurity to the economy. Due to this factor the Latin America iscontemplating for future with insecurity since whenever there ispolitical instability the economy is unstable.
The next factorthat is making the Latin American countries contemplate futureinsecurity is economic slowdown due to inflation of the prices whichmakes the investors and entrepreneurs to avoid trading with the localcompanies (Grossman and Esteban, 2006). The shortages of certainfoodstuffs and the products that are considered as the consumable areproduced in small quantity making the economy unstable. To ensurethat the inflation does not occur it is important for the financialsystem in Latin America to come up with monetary policies that cancurb the high inflation rate. The exportation of consumable productsshould be embraced based on the fact that in other countries theprices may be low and thus market fluctuations will be solved. Whenthe market prices fluctuations are solved the financial institutionsin the Latin American countries can deal with the inflation once andfor all.
Latin American hasto contemplate future insecurity if the economy keeps ondeteriorating since at the long run it further leads to the LatinAmerican countries collapsing. Entrepreneurs and investors have tocome up with innovation-driven approaches that are supposed tostabilize the economy of the countries. Importation and exportationplay an important role in making sure that the economy is stablesince revenue is generated that can lead to stabilization of theeconomy.
Anaya, J. (2003). Latin American macroeconomic reforms the secondstage. Chicago: University of Chicago Press.
Casacuberta, C., Gandelman, N., Olarreaga, M., Porto, G. &Rubiano, E. (2009). Export premiums. Washington, DC: PalgraveMacMillan & World Bank.
Dumrauf, G.L. (2012). Currencychoices in Valuation: An approach for emerging markets.Universidad del CEMA.
Garcia, M. (2001). DolIarization:The recolonization of Latin America.Retreived from: International Socialist Review
Grossman, M., & Esteban, R., (2006). The Rise of Offshoring:It’s Not Wine for Cloth Anymore. Princeton University.
Lopez, J. & Shankar, R. (2011). Getting the most out of freetrade agreement in Central America. Washington, DC: World BankPublications.
OECD. Org. (2015). Economic Outlook: Projections for Latin Americancountries. Available fromhttp://www.oecd.org/eco/outlook/projections-for-latin-american-countries.htm
Ricardo, A. (2015). Economic Snapshot for Latin America.Available from http://www.focus-economics.com/regions/latin-america