Miguel Pérez (ECLAC)
Latin America and the Caribbean’s current account deficit is growing fast: From 1.8% of GDP in 2012 to 2.6% in 2013, which the rest of the world is financing chiefly through foreign direct investment. As any liability, FDI needs to be repaid. This is done through FDI income, or the profits made by transnational corporations in the region. Returns on FDI are generally higher than other forms of capital: The average profitability of FDI in the region fluctuates with the economic cycle but rarely goes below 5%. More important, the liability is now huge and keeps growing. Stock of FDI in the region grew from 500 billion ten years ago to almost 2 trillion now.
A large stock and a consistently high rate of return generate a large outflow of FDI income, 112 billion in 2013, which is the largest debit item in the current account. This is hardly compensated by FDI income brought home by trans-Latin corporations from abroad. As a result, the deficit of FDI income has been close to 100 billion for the past three years (see chart below). On the other hand, the single largest positive item in the current account, the trade of goods, was reduced sharply in the past two years.
A large stock and a consistently high rate of return generate a large outflow of FDI income, 112 billion in 2013, which is the largest debit item in the current account. This is hardly compensated by FDI income brought home by trans-Latin corporations from abroad. As a result, the deficit of FDI income has been close to 100 billion for the past three years (see chart below). On the other hand, the single largest positive item in the current account, the trade of goods, was reduced sharply in the past two years.