Andres Oppenheimer: Weaker currencies may hurt Miami, a bit…

Judging from the Miami Herald’s latest headlines, home prices in Miami keep soaring and tourists from Brazil, Argentina and Venezuela keep flooding this city thanks to their countries’ strong currencies. The big question is how much longer the fiesta will last.

If you look at the latest economic figures, you may conclude that it’s about to be over. Latin American currencies have depreciated rapidly in recent weeks, making it more expensive for Latin Americans to travel and buy properties abroad.

Over the past month, Brazil’s currency fell by nearly 10 percent relative to the U.S. dollar. Brazil’s Central Bank announced Friday that it will inject up to $60 billion into the economy over the next four months to keep the Brazilian currency from falling further.

Over the past 12months, Brazil’s currency fell by nearly 22 percent relative to the U.S. dollar, Argentina’s by 21.4 percent, Peru’s by nearly 8 percent, Chile’s by almost 7 percent, Colombia’s by 6 percent, and Mexico’s by 1.4 percent, according to the Inter-American Development Bank (IADB).

In the Caribbean, Jamaica’s currency fell by nearly 14 percent and the Dominican Republic’s by 8.4 percent over the same period, the IADB says.

The depreciation of emerging countries’ currencies has accelerated since Federal Reserve chairman Ben Bernanke suggested June 19 that the U.S. economic recovery may allow the government to scale down its stimulus funds. That has led to the belief that U.S. interest rates will rise, and has moved investors to begin shifting money back from emerging countries to the United States, economists say.

Most international financial institutions tend to think that the decade of super-strong Latin American currencies has come to an end.

“The party is going to be over soon, if it’s not over already,” senior IADB economist Andrew Powell told me. “World interest rates that have been at historically low levels will not remain there; the growth rate of China in recent years is not sustainable, Europe still has its problems, and commodity prices will likely come down.”

The change could help Latin American countries in the long run, among other things because weaker currencies could make their exports more competitive abroad, economists say. But it will make their imports — as well as trips to Miami — more expensive.

“If the trend of depreciation of Latin American currencies of the past few weeks continues, we could see a drop in Latin American tourism and property purchases in the United States,” says Daniel Lederman, a senior World Bank economist specializing in Latin America.

But some private sector economists disagree, saying that they don’t expect a continued drop of Latin American currencies, nor a dramatic decline in tourism or real estate purchases in the United States.

“Miami shouldn’t lose any sleep,” says Alberto Bernal, head of research of Bulltick Capital Markets. “What we have seen in recent weeks is a normal correction within an ongoing boom.”

Bernal’s logic is that the fundamental factor behind Latin America’s strong currencies — the rapid urbanization of India and China, whose new middle-classes are consuming more Latin American commodities — remains unchanged. People in India and China will continue migrating to the cities for the foreseeable future, he says.

“This boom will end when China’s urbanization rate reaches 70 percent of its population, from the current 51 percent, and that process could last another fifteen years,” Bernal told me. “In the meantime, Latin America’s commodities will continue to be much coveted products.”

My opinion: I wouldn’t be surprised to see a further depreciation of Latin American currencies, especially in South America’s commodity exporting countries.

A recovering U.S. economy will draw more capital from emerging economies to the United States. And while China’s middle class will keep growing and consuming Latin American commodities, a trip to China a few months ago makes me wonder whether the country’s social tensions over corruption, pollution and other issues won’t result in political turmoil, and slower growth than currently expected.

Latin America’s commodity exporters should roll up their sleeves, increase productivity, draw investments and diversify their economies promoting non-traditional exports — all of which they should have started doing years ago.

Fortunately, many of them have built healthy foreign currency reserves, and have not incurred massive debts like the ones that led to the 1980’s financial crisis.

The party is over, but if they handle it well, it doesn’t need to be a traumatic awakening, neither for them nor for Miami.

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