Latin America stunned by global financial crisis

BUENOS AIRES, Argentina — The abrupt end of the worldwide commodities boom has stunned Latin American nations that had bet the farm on the idea that raw materials were a ticket to boundless prosperity in the globalized economy.

A galloping sense of insecurity has replaced the swaggering former confidence that insatiable demand would maintain high prices for products as varied as soybeans, copper, wheat and coffee. Commodities have tumbled in value in the wake of the financial meltdown.

Some observers even fear that Latin America's most prolonged growth spurt in years could be over, ushering in an era of renewed austerity.

"We're sailing without a compass," said Nilson Wirth Monteiro, a consultant with Link Investments in São Paulo, Brazil, the epicenter of Latin America's largest economy. "There's no compass to indicate how commodities and global markets will behave."

Leaders such as Brazil's Luiz Inácio Lula da Silva initially boasted that their nations would be inoculated against the "jazz effect" — as Argentine President Cristina Fernández de Kirchner mockingly dubbed the spreading crisis in an address before the United Nations.

But that early sense of insouciance largely has vanished. Credit has become extremely tight and earnings from commodity exports are tanking. Plummeting regional stock markets have followed Wall Street's nose dive. Central banks from Mexico City to Santiago, Chile, have disbursed cash to bolster suddenly shaky currencies.

Breadbasket Argentina, one of the world's leading producers of soybeans, corn and wheat, could lose as much as $6 billion next year because of reduced agricultural exports, according to one estimate.

Many governments, including Brazil, might have to rethink ambitious spending plans meant to improve infrastructure and reduce poverty.

"Latin American leaders have in a few days gone from preoccupation with the phenomenon happening elsewhere in the world to abject fear," noted officials at the Washington, D.C.-based Council on Hemispheric Affairs, in a report released Friday.

"There is a growing nervousness that once again Latin America cannot escape the consequences of the globalized financial connections that run through the United States."

With soy prices down from record highs, alarmed farmers who have covered vast tracts of pampas and rain forest in Brazil, Argentina, Paraguay and Bolivia with soybeans are wondering whether the boom has turned to bust. Anxiety has trumped yesterday's rural bluster.

It has been a traumatic turn of events for an affluent rural class accustomed to reveling in soaring futures prices on their BlackBerries even as they navigated tractors through shimmering expanses of soybeans.

"We don't know where we're headed," said Alejandro Giordani, a soy producer in Argentina's Santa Fe province. "We don't have any certainty about the price of soybeans, and that scares us, especially now in the planting season."

Commodities as far-ranging as beef from Argentina, iron ore from Brazil and zinc from Bolivia have been growth engines, sparked in part by sales to China and India.

Now, anxious producers cross their fingers that the economic meltdown will not cause a free-fall in demand from Asia.

"We know that millions of people will continue entering the formal economy in emerging economies like China and India," Giordani said. "That gives us some hope."

Some countries clearly are prepared better than others.

Chile has socked away $20 billion from windfall copper-export earnings. Brazil has a highly diversified economy, with a huge domestic market, and $200 billion in reserves.

Links to battered U.S. markets are much less profound in Brazil and Argentina than in Mexico and Central America, where U.S. trade and remittances from immigrants in the United States are economic pillars. Argentina's status as a chronic investment risk actually could work in its favor, because there is relatively little foreign money poised to flee.

"I think Argentina will be OK, as well as Brazil," said Mark Weisbrot, co-director of the Center for Economic and Policy Research in Washington, D.C., which released a study showing that trade with the United States represents less than 2 percent of the gross national products of Argentina and Brazil.

By contrast, U.S. trade accounts for 21 percent of Mexico's gross domestic product, 15 percent of Venezuela's GDP (mostly oil) and about 5 percent of the GDPs of Peru, Chile and Colombia.

The rampant uncertainty has put a halt, for now, to the prospect of unending good times through the exports of foodstuffs and minerals.

"The mood is guarded, and there is a great apprehension in Brazil, just like in the United States, that the worst has yet to come," said David Fleischer, a professor at the University of Brasília. "Unfortunately, no one knows where the bottom of the barrel is yet."

Andres D'Alessandro of the Los Angeles Times' Buenos Aires bureau and special correspondent Marcelo Soares in São Paulo contributed

to this story.