Latin America Faces a Major Test in 2008

Some countries in Latin America face stiff competition from China and India, especially when it comes to raw materials. The countries that suffer the least from these Asian giants are Bolivia, Paraguay, Venezuela and Chile. The OECD warns, however, that recent economic data suggest that companies will need to avoid concentrating on specific export sectors to the detriment of other sectors. "Latin America must see its relationship with China and India more as an opportunity to form partnerships than as a competitive threat," argues the report from the OECD, which comprises 30 of the world's largest economies.

Pampillón agrees. "The economic development of China and India provides an opportunity for Latin American countries, because they will be able to increase their exports to those two countries [China and India]," he says. Those two Asian countries have become "the factory of the world." They are demanding raw materials, and "Latin America is playing a very important role by selling those raw materials to both countries."

However, Pampillón warns, "There is [always] a danger when you specialize in exporting raw materials. Historically the countries who do that invest less in research and development, which stops them from growing and makes them more dependent on other countries." The nations of Latin America need to move beyond exporting raw materials and become countries that develop technology, services and industrial goods, he adds.

In the OECD report, experts once again mention Latin America's age-old but still urgent need to use fiscal and social policy to reduce the region's vast socio-economic disparities. The countries of the region must also stay on track with their efforts to reform pension systems, and they must improve their regulatory regimes so that foreign investment can expand and contribute fully to the development of the region, the report says.

Editor's note: Exchange-traded funds (ETFs ) that track the performance of many Latin American companies include the iShares MSCI Brazil Index Fund (EWZ), iShares MSCI Mexico Fund (EWW) and the iShares MSCI Chile Index Fund (ECH). To learn about other Latin America-specfic ETFs, check out "Top ETFs Have a Latin America Flavor" on TheStreet.com.

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