Colombia Surpasses Argentina As Latin America’s Third-Largest Economy Due To Inflation, Currency Changes, GDP Growth

 @PReyMallen on March 25 2014 6:03 AM
Colombia Bogota by Shutterstock
Bogota, Colombia with the Andes in the background. Shutterstock.com

Argentina, once the third-strongest economy in the western hemisphere, extended its decades-long decline by ceding the No. 3 spot among Latin American economies to Colombia later this year -- thanks to the second-weakest currency in the region, soaring inflation, weak economic growth and chronic political problems, Capital Economics said on Monday. Brazil and Mexico remain No. 1 and No 2, respectively.

There are several reasons for the decline. The Colombian peso has remained relatively stable for the past year, with a current exchange rate of 1,990 pesos per $1. On the other hand, the Argentinean peso steadily dropped against the dollar all through last year, falling 20 percent to a current 7.9 pesos per $1.

Another factor contributing to the rise of Colombia against Argentina is its low inflation, which averaged 2.19 percent last year and with predictions of a little more than 1 percent annually for 2014, Capital Economics said Monday. This is a far cry from the inflation drama Argentina has been dealing with: the government just recently admitted the real figures, which clock in at 3.5 percent monthly and more than 20 percent annually.

Until last month, Argentinean President Cristina Fernández de Kirchner was adamant that inflation was controlled at a rate of 6 percent annually, despite international analysts unanimously saying government figures were false and inflation was actually in double figures.

Added to these two factors, the gross domestic product of Colombia is expected to be close to 5 percent this year but 3.6 percent for Argentina.

Argentina's decline is not the only change to the Latin American ranking: with shortages, a weakened currency and serious political problems, oil-rich Venezuela is handing over fifth position to stable, growing and highly privatized Chile. The top rankings then are Brazil, Mexico, Colombia, Argentina, Chile and Venezuela.

But even this new list does not appear permanent. Brazil and Mexico are set in largest and second largest economies, but London-based financial firm Capital Economics predicts a revision of the rest in the upcoming months.

“With both Argentina and Venezuela on the cusp of a balance of payments crisis, we expect them to slide further down the pecking order,” forecasts emerging markets economist David Rees. “That could eventually see Chile overtake Argentina to become the region’s fourth-largest economy and Venezuela slip behind Peru.”

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