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Rising Oil Prices Threaten the 'Green Shoots' of Global Economic Recovery
From Universia Knowledge@ Wharton
Some months ago, petroleum prices became a favorable factor in the global economy in the midst of the worldwide recession. Prices fell from their historic height of about US$148 a barrel last July to US$34 this February. But crude has begun a new path upward, moving above US$65 a barrel just when some global organizations like the International Monetary Fund were beginning to talk about the first signs of a recovery of the world’s major economies.
Dominique Strauss Kahn, director general of the IMF, said on May 15 during a conference in Vienna that there are "green shoots" in the global economy and "glimmers of hope on all sides… [In] some ways, we have left the worst behind us." He indicated that the IMF’s main worries continue to include the health of the banks, which must clean up their balance sheets in order to enable the broader economy to recover.
According to Pampillón [professor of country analysis and economics at the IE Business School], this rise in petroleum prices "is going to negatively affect developed countries that import oil, since the first and most serious negative consequence of a higher price of oil is going to be the increased cost of energy imports for those countries, companies and families." Nevertheless, he adds, "since the price of petroleum is denominated in dollars, countries such as Brazil, Peru, Chile and the Euro zone can do a better job of avoiding the impact of the higher price of crude thanks to the greater strength of their currencies."
However, not everyone in the world is going to be hurt by higher prices for crude. Pampillón says, "It is clear that companies that have reserves of petroleum will see their revenues rise in a meteoric way, and also that state treasuries will increase their fiscal revenues from gasoline taxes. The rise in the price of crude is also going to directly benefit producing countries. Venezuela, Argentina, Brazil, Cuba, Ecuador and Mexico are going to see their revenues grow, which could improve their trade balances and fiscal balances." >>>>Go to Full Story >>>
The Fall of Pension Funds in Chile: A Lesson from the Downturn
Imagine if you were about to withdraw your life savings to begin your retirement, and then discovered you had lost almost 17% of that money. That is the situation facing many older workers in Chile. In July 2007, the savings of Chilean workers totaled US$104 billion, according to CENDA, the Chilean economic research center. That is a large number given the small size of the country’s economy. But from the time the U.S. subprime crisis began to set off alarm bells in the middle of 2007, to the moment last September when the crisis blew up, the total has dropped considerably. Chilean pension funds have suffered very dramatic losses, and have openly recommended on television that the public not make their next investment decisions under pressure brought on by market conditions. They have asked the younger population to remain in variable income funds – A, B, and C. For those close to retirement, they suggest changing to fund E. David Díaz, professor of economics and business at the University of Chile, agrees with the AFP’s recommendations. He notes, "While it is true that investing in variable income funds – especially A and B – is much riskier, this risk is compensated for by a larger return when you think in periods of 20 years." Over that length of time, there are many possibilities for stock market prices to rise and to compensate for the declines. The appropriate investment decisions for younger contributors is to keep their savings in variable income funds – A, B, and C – and give time for the market to recover.
LATIN AMERICA OUTLOOK FOR 2009: Taking stock of the financial crisis and adjusting plans
The recent financial crisis has shaken business confidence across the globe. Emerging markets are victim to a financial meltdown that is largely not their doing. Latin America witnessed the erosion of its enviable macroeconomic position in a matter of weeks as capital flew the coop and currency prices plummeted. After six years of consecutive growth, global business became accustomed to and even reliant upon a steadily expanding Latin American market. Now companies are questioning their plans for 2009 and wondering out loud how best to address the risks and potential opportunities facing them in the year ahead.