By Fernando de Castro
The shift to the left in Latin American countries has brought an economic cost to its nations.
According to the International Institute of Finance (IIF), the outflow of large fortunes in 2022 was the largest in ten years, according to a report by Bloomberg news agency, published on Tuesday 2.
High-net-worth individuals seek to invest their money in the United States to avoid losing their financial assets.
Contributing to the capital flight are the economic policies adopted by socialist governments in Latin America, such as Colombia, Argentina, Chile, Mexico, and Brazil.
“As all the major Latin American countries turn to the left, capital is fleeing the region,” says the report.
“Wealthy, and increasingly middle-class, investors are looking for a plan B in case of further economic and political turmoil.”
Whether investing in the financial market or looking for ways to buy some real estate in the United States, Latin American investors find stable investment options in the US.
Some attractions are the good return on the money invested and the country’s fiscal and political security.
But the situation may get worse because Brazilian investors are starting to be sought out to contribute even more to the capital flight scenario from Latin America.
Soon after the election of Luiz Inácio Lula da Silva, American businessman Edgardo Defortuna scheduled trips to Brazil to attract Brazilian investors.
His company specializes in buying, selling, and building real estate in Miami.
Defortuna booked the trip because of the announcement of the taxation of large fortunes, promised by Lula during the campaign.
The search for new Brazilian clients adds to the growing interest in investments in real estate located in Miami.
The capital flight in Latin America corroborates the forecast of the Economic Commission for Latin America and the Caribbean (ECLAC), linked to the United Nations (UN).
The organization expects a slowdown in economic growth in Latin America and the Caribbean in 2023, with an advance of 1.2%.
The factors behind ECLAC’s pessimistic forecasts are the limitations of the countries’ internal economic policies, which cause a drop in economic activity and high inflation.
ECONOMISTS EVALUATE THE SITUATION IN LATIN AMERICA
Economists interviewed by Oeste analyzed the probable reasons for the departure of capital from Latin American countries.
The expansion of public spending and inflation, and state intervention in various sectors of the economy are some of the reasons cited as possible causes for the exit of fortunes from Brazil.
Ecio Costa, economist and professor at the Federal University of Pernambuco (UFPE), suggests the increase in taxes as one of the causes for the withdrawal of investments in countries governed by socialists.
“When there is a policy of raising expenses and taxes to cover public spending, even without wanting to raise the debt/GDP ratio, the result is a concern for investors, business people, and even individuals, who struggle to maintain their assets,” Costa observed.
“This drives away wealthier people, who decide to invest in countries with a lower tax burden.”
The economist also cites the search for countries that offer greater protections for one’s resources.
“Many people seek asset protection, but others want exchange rate protection,” he considered.
“Because the currency is devalued as inflation or interest rates get out of control.”
“Consequently, investors lose confidence in the conduct of the debt/GDP ratio. The dollar appreciates with the consequential outflow of resources.”
Economic analyst Tays Marina, meanwhile, mentions other reasons for the outflow of financial resources from countries governed by socialists.
The negative scenarios in the macroeconomic context of these nations are some of the reasons for the withdrawal of investments.
“Capital flight mainly affects emerging countries,” notes the economist.
“This occurs because of the relationship of these nations with the global economic scenario.”
Economic and political factors strongly influence Latin American countries simultaneously.”
“As a result, investors withdraw their investments because of the loss of confidence in these countries.”
“They become fearful about the return and stability of their investments – especially with political turbulence or economic recessions.”
The economist added that populist promises, such as taxing large fortunes, result in capital flight to countries with more politically and economically stable scenarios.
With information from Revista Oeste