With Low Debt, Latin America Should Do Better This Year

One of the factor that influences the performance of an economy is the external debt owed – which is the amount owed by locals to non-residents (or foreigners). According to  Finance & Development of IMF’s Statistics Department, in Latin America external debt as a percentage of GDP has fallen significantly over the past five years. During the same time external debt has increased in Europe.

Latin America’s debt  has decreased from 59% of GDP in 2003 to 32% in 2008.Brazil, for example, reduced its debt from $43B to $16B in the same time period. Just like for individuals, having a low debt helps a country by reducing interest expenses and other related costs.

Another factor to note about the debt in Latin America is that most of the debt is owed by  private nonbank and public sectors. Debts owed by banks is just 16%  of the GDP.But in Europe, in 2008 banks owed 54% and 45% of foreign borrowing in Europe and Asia respectively. With many banks in trouble around the world, having less bank debt is better forcountries.

Chart -  Latin America Debt CompositionLatin America Debt

Chart – Europe, Asia and Latin America Debt Composition


Source: Finance & Development – March 2009, IMF

Some investors believe that  countries with low debt or a surplus are better for invstments than those with excessive debt. Based on this logic, some of the economies listed above are good investment destinations. Mexico, Chile and Brazil are three picks. An easy way for investors to get exposure to these eocnomies is via an ETF. The ETFs for these countries are listed below:

1.Brazil – iShares MSCI Brazil Index (EWZ)

2.Chile – iShares MSCI Chile Index (ECH)

3.Mexico – iShares MSCI Mexico Index (EWW)

One Comment

  1. Hey David, great post…. good to have you updating us on these details…. by the way, you should be on Twitter updating all of this too…. find me there at http://twitter.com/MoneyEnergy.

    What’s your take on how fast China’s going to recover? I have another question for you too, about holding ADRs.

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