MercoPress. South Atlantic News Agency

Forbes: Chile, Peru, Colombia, best countries for business in Latin America

President Alan Garcia has paid dearly that strong growth has not been shared by all Peruvians

Chile, Peru, Colombia are listed among the Best Countries for Business according to a ranking from the US Forbes magazine which includes 129 countries taking into consideration several indexes: GDP growth, GDP/capita, trade balance, population and budget affairs.

Denmark tops the ranking, followed by Hong Kong and New Zealand (1,2,3). United States saw the biggest fall in this year’s ranking, falling to position 9 from last year’s 2. UK figures in position 10 and Australia, 11.

In Latin America, the best positioned is Chile, 23, followed by Peru, 49, Colombia, 51, Mexico, 55, Uruguay, 60, Brazil, 62, Paraguay, 88, Argentina 93 and bottom of the list Venezuela ranked 128.

According to Forbes Chile has a market-oriented economy characterized by a high level of foreign trade and a reputation for strong financial institutions and sound policy that have given it the strongest sovereign bond rating in South America. Exports account for more than one-fourth of GDP, with commodities making up some three-quarters of total exports. Copper alone provides one-third of government revenue. During the early 1990s, Chile's reputation as a role model for economic reform was strengthened when the democratic government of Patricio Aylwin, which took over from the military in 1990, deepened the economic reform initiated by the military government.

Growth in real GDP averaged 8% during 1991-97, but fell to half that level in 1998 because of tight monetary policies implemented to keep the current account deficit in check and because of lower export earnings - the latter a product of the global financial crisis.

A severe drought exacerbated the situation in 1999, reducing crop yields and causing hydroelectric shortfalls and electricity rationing, and Chile experienced negative economic growth for the first time in more than 15 years.

In the years since then, growth has averaged 4% per year. Chile deepened its longstanding commitment to trade liberalization with the signing of a free trade agreement with the US, which took effect on 1 January 2004. Chile claims to have more bilateral or regional trade agreements than any other country. It has 57 such agreements (not all of them full free trade agreements), including with the European Union, Mercosur, China, India, South Korea, and Mexico.

Over the past five years, foreign direct investment inflows have quadrupled to some $17 billion in 2008, but FDI dropped to about $7 billion in 2009 in the face of diminished investment throughout the world.

The Chilean government conducts a rule-based countercyclical fiscal policy, accumulating surpluses in sovereign wealth funds during periods of high copper prices and economic growth, and allowing deficit spending only during periods of low copper prices and growth.

As of September 2008, those sovereign wealth funds - kept mostly outside the country and separate from Central Bank reserves - amounted to more than $20 billion. Chile used 4 billion USD from this fund to finance a fiscal stimulus package to fend off recession.

Forbes says Peru's economy reflects its varied geography - an arid coastal region, the Andes further inland, and tropical lands bordering Colombia and Brazil. Abundant mineral resources are found in the mountainous areas, and Peru's coastal waters provide excellent fishing grounds.

The Peruvian economy grew by more than 4% per year during the period 2002-06, with a stable exchange rate and low inflation. Growth jumped to 9% per year in 2007 and 2008, driven by higher world prices for minerals and metals and the government's aggressive trade liberalization strategies, but then fell to less than 1% in 2009 in the face of the world recession and lower commodity export prices.

Peru's rapid expansion has helped to reduce the national poverty rate by about 15% since 2002, though underemployment remain high; inflation has trended downward in 2009, to below the Central Bank's 1-3% target.

Despite Peru's strong macroeconomic performance, overdependence on minerals and metals subjects the economy to fluctuations in world prices, and poor infrastructure precludes the spread of growth to Peru's non-coastal areas. Not all Peruvians therefore have shared in the benefits of growth.

President Alan García’s pursuit of sound trade and macroeconomic policies has cost him political support since his election. Nevertheless, he remains committed to Peru's free-trade path.

Since 2006, Peru has signed trade deals with the United States, Canada, Singapore, and China, concluded negotiations with the European Union, and begun trade talks with Korea, Japan, and others. The US-Peru Trade Promotion Agreement (PTPA) entered into force 1 February 2009, opening the way to greater trade and investment between the two economies.