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Will Economic Rain In Spain Dampen Fortunes In Former Latin American Colonies?

Article illustrative image Partner logo The streets of Santiago, Chile

-News Analysis-

SANTIAGO - This coming Sept. 1, the approximately 150,000 immigrants without papers in Spain - many of them from Latin America - will no longer be able to get medical services. That is the day that the government decree that restricts medical care for illegal immigrants comes into effect, with exceptions for children and pregnant women.

The decree is one of the austerity measures that Prime Minister Mariano Rajoy’s government has taken in reaction to the Spanish financial crisis, and it exemplifies the impact that the euro zone storm is starting to have on Latin America.

There are four ways that the Spanish crisis can affect Latin America: a reduction in remittances, reduced access to Spanish capital due to the closure of Spanish banks in the region, decrease in Spanish direct investment in our countries and a decrease in Latin American exports to Spain.

Of these potential effects, only one has truly started to be felt, but it only concerns one country. The remittances from Ecuadorians living in Spain to their family members in Ecuador has fallen by more than 24% in the first trimester of this year. Those remittances are not insignificant - they are equivalent to 1.5 percent of the Ecuadorian GDP.

Nothing disastrous has happened yet in relation to access to capital markets. Spain's El Banco Santander announced at the end of last year that it would withdraw from Colombia, and BBVA has announced that it would sell its stake in Latin American pension funds. Still, there are plenty of banks, both local and foreign, that are interested in stepping in. The Spanish banks in the regions, in any case, operate primarily with local capital.

In terms of investment, Enersis, the Chilean affiliate of Spanish electric company Endesa España, had to take a step backwards in raising capital after Chilean minority stockholders accused the Spanish company of overvaluing its own activities and using it to balance its own books with Chilean capital. But the company was ultimately able to raise funds as planned, although only $7 billion instead of $8 billion as planned originally.

On the other hand, Latin American exports to Spain started to fall in December 2011, but they haven’t seriously decreased: this year is supposed to be more or less the same as last year. And Spain is not the most important trading partner for the region.

What we really should be worried about is the price of raw materials that pay salaries in Latin America. Those prices have stayed high mostly thanks to China, which has been devouring raw materials needed for industrialization over the past 10 years. It was those high commodity prices, more than anything else, which allowed Latin America to grow at record levels over the past decade and to skirt the global recession of 2008-2009.

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