MercoPress. South Atlantic News Agency

Weaker Latin American currencies against the US dollar next year

Strong dollar and fall in commodities prices will have an impact on the region's currencies

Latin American currencies will lose value against the US dollar in 2015 because of the strong US recovery and lower commodities' prices according to Itau-Unibanco, Brazil's largest private bank which also anticipates a strong fiscal adjustment by President Dilma Rousseff's next administration, in an effort to regain investors' 'confidence'.

 “Next year there will a greater devaluation of Latin American currencies which will receive the full impact of lower commodities' price and the US recovery”, said the bank's chief economist Ilan Goldfjan in Sao Paulo.

The largest Brazilian bank also anticipates that the US recovery will strengthen the dollar, while the European Union will grow at a slower pace and China will continue its expected economic deceleration.

Goldfjan said that all Latin American countries suffered a slowing down in 2014 because of lower prices for commodities, but on the good side he anticipates a 'moderate recovery' in the region's rate of activity.

Regarding Argentina the economist said that in 2016, following the presidential election, a strong balancing of government spending can be expected.

As to Brazil, Goldfjan as well as the bank's CEO Candido Bracher praised the fiscal package promised by the country's next Finance minister Joaquim Levy who anticipated he would implement government savings to ensure a budget primary surplus equivalent to 1.2% of GDP this coming year.

“The economic team must have political support for its plan”, said Bracher who underlined that 'greater austerity' by the second administration of president Rousseff as of next January first “is the only option” to recover confidence from investors in Brazil.

Goldfjan said that the fiscal tightening promised by Levy will be “expansionist” since the goal is recovering 'confidence', because in reality there is no problem with the economy's domestic demand.

“There will be an adjustment, but there is limited space to move, just like a short blanket”, he added.

The bank's leading economist forecasted that the US dollar would be trading at 2.80 Reais by the end of next year while inflation will be in the goal range which is a maximum of 6.5%.

“Devaluation will reflect in inflation, making services cheaper, but dearer other sectors, and this will force a reconversion in the way inflation is calculated because of the rising cost of the dollar”.

However Bracher also admitted that the market is 'edgy' and contained because of the major corruption scandal in Petrobras which involves not only top officials from the oil company but also Brazil's main contracting corporations.

But the medium and long term prospects of Petrobras “are good” since it includes plans to extract oil from offshore reservoirs at “lesser operating costs”.