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Interview: South America must act to counter falling raw material prices, says expert

Xinhua, January 28, 2016 Adjust font size:

South American economies need to strengthen their internal consumption and diversify their export bases to tackle falling raw material prices, said an expert of the Economic Commission for Latin America and the Caribbean (ECLAC).

South American countries are dependent on raw material exports, Venezuela on oil and Chile on copper, for example, making them particularly susceptible to the current low price environment, Ramon Padilla, head of the economic affairs unit of ECLAC, told Xinhua.

Padilla's remarks came shortly after the Monday release of UN's new report, "World Economic Situation and Prospects 2016," which predicts that Latin America and the Caribbean will see an economic growth of just 0.7 percent in 2016 due to weak trade and the fall in raw material prices.

In order to stem the possible crisis, ECLAC suggest South American countries strengthen internal markets, increase public investments, and stimulate domestic consumption to make up for lower international demand, Padilla said.

According to the report, raw materials currently make up 71.4 percent of all South American exports, making government budgets heavily dependent on them.

This is a particularly serious situation for countries such as Ecuador and Venezuela, which receive around 40 percent of their revenues from oil exports.

The UN has noted China's fluctuating markets and deceleration of the economy -- as it transits toward a growth model based on domestic consumption and services -- have contributed to the dropping prices.

Padilla warns that slower Chinese growth will impact South American economies as they will see one of the largest markets for coal, iron, copper and oil shrink.

Furthermore, Padilla recommends that South American countries rapidly expand the basket of products they export and seek new commercial partners.

"Instead of focusing on a few raw materials, they should diversify into other raw materials, services and manufacturing. This would reduce the impact of external shocks," Padilla added. Endi