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Trump spells trouble for Latin American investors

Latin American economies would face big problems if Donald Trump were elected US president, warns emerging market debt manager.

 
Trump spells trouble for Latin American investors

Donald Trump successfully ascending to the White House in November could spell real problems for Latin American investors, according to emerging market debt expert Claudia Calich.

The Republican frontrunner has been an outspoken advocate of deporting 11 million migrants and impounding all remittance payments derived from ‘illegal’ wages.

Calich, who runs the M&G Emerging Markets Bond fund, said Trump’s potential policies on countries with large immigrant populations in the US, such as Mexico and the Dominican Republic, would be hugely detrimental for the region.

‘Remittances benefit receiving countries as they reduce their current account deficits and have a positive impact on domestic consumption and growth, although studies have also pointed out some negative impact through increasing income inequalities or potential for currency appreciation, making exports less competitive,’ she said.

While Mexico has the largest number of absolute immigrants in the US, according to data compiled by Calich, unauthorised remittances make up 1.3% of its gross domestic product (GDP).

This is less than other countries, such as El Salvador, where they make up 8.0% of GDP and Honduras, where they make up 13.2% of GDP. Calich said these have a higher share of remittances versus GDP as their share of illegal immigrants is higher in comparison to the size of their population and economies.

While Mexico is less dependent on remittances, Calich thinks it would be impacted by other policies. ‘Mexico, instead, would be much more negatively affected should the existing Nafta free-trade agreement be renegotiated, as its economy is much more dependent on exports to the US than worker remittances,’ she said.

Calich thinks Trump’s proposed policy of deporting immigrants could negatively impact economic growth and domestic currencies. ‘Clearly, there are other broader implications that are much harder to quantify. Larger current account deficits would lead to a combination of weaker currencies, higher debt levels and nominal price deflation in the case of dollarized El Salvador,’ she said.

‘Growth could also be lower if the increased workforce is not able to find similar opportunities at home, which would be negative for their fiscal accounts and debt dynamics. Let’s hope that common sense and the impracticality of deporting 11 million people prevails in the end.’

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