Worried about the economic crisis? Thinking of cutting back? Think again, Argentine president Cristina Kirchner advised this month. Though her words were directed at Argentines afraid of spending in case they lose their jobs in the current fragile climate, it’s a message she and other Latin American leaders have been keen to sell to investors as the fortunes of their recently-booming region have begun to bomb.

Governments in Latin America’s major economies have unveiled stimulus packages in recent weeks, including wooing the private sector with cheap loans and pouring money into labour-intensive sectors like construction and infrastructure, hoping to shore up their flagging economies and to attract elusive investment dollars. 


The UN’s economic agency for Latin America, ECLAC, says foreign direct investment to the region will be a near-record €80bn for 2008, but expects it to fall sharply this year, though it’s too soon to say by exactly how much. ECLAC expects growth in the Latin American and Caribbean region to slump to 1.9% this year after 4.6% in 2008, though some economists think even that modest level will be a tall order. 


Lower growth spells lower profits — a prospect that will douse both companies’ enthusiasm and ability to make investments without recourse to external financing, which will inevitably become harder to get. 


The global economic crisis has already claimed some high-profile investment casualties, including a €1.64bn iron ore mine expansion which global mining group Rio Tinto has shelved in Brazil. A €1.67bn cellulose project by Brazilian pulp giant Aracruz is on hold in Mexico, and the government there has delayed bidding on a €4.5bn port project designed to be one of the biggest in the world.


Governments have thus had to take the initiative themselves with massive investment programmes, hoping private investors will jump on the bandwagon at a later date. 


“It can be attractive for the private sector to invest in these areas if they see governments putting money in,” says Claudio Loser, formerly the International Monetary Fund’s top official for Latin America and now with the Inter-American Dialogue.


Infrastructure is seen as a way of creating jobs while at the same time seeking, literally, to lay stronger foundations for renewed growth once the crisis finally ends. 


Among a raft of stimulus measures, Brazil, the region’s powerhouse, plans to spend €114bn to double the amount of low-income housing. Chile has announced a €3bn economic rescue plan, including €530m to be spent on public works projects. Peru, the region’s star performer of late, plans to spend €9.8bn on projects including housing and highways; Argentina has also unveiled an ambitious investment programme worth more than €22bn; and Mexico is also spending an extra €30m on infrastructure this year. 


But no one is pretending it will be easy. Flush from the sky-high international prices commanded until recently by their metals, oil and agricultural commodities, Latin American countries have enjoyed several years of unprecedented boom. Now the brakes are on, and with their economies under pressure as surpluses turn to deficits and export revenues slide, countries have little room to manoeuvre to boost spending without sacrificing the economic stability gained over the last few years in a region once known for fiscal misrule. 


Chile, the world’s biggest copper exporting country, squirrelled away a chunk of its bonanza from the red metal for a rainy day and Peru was also prudent, but few others followed suit. And spending pressures will intensify as Chile, Brazil and Uruguay all face presidential elections by 2010, and Argentina has mid-term legislative polls this year.


There is some hope on the horizon. Jerry Haar, associate dean at Florida International University’s College of Business Administration, noted that Panama was pushing ahead withexpansion of the Panama Canal, and highlighted the Hilton Hotels group’s plans to build 150 hotels in the region over the next five years. That’s the kind of investment countries cherish, says Haar: “It’s portfolio investment, not a one-night stand … by the time the hotels are ready, we’ll be out of this [crisis].”


Among sectors poised to buck the downturn, he cites wireless technology in Costa Rica, which is expected to surge to 80% in the coming years from less than half that level now. Peruvian food and textile exporters are poised to benefit from free trade deals with the US. Meanwhile, he quotes a Japanese multinational, which he doesn’t name but which supplies medical equipment to Venezuela, as saying “we’ve never done better”.


No one yet dares venture to say how long the gloom will last. But Daniel Kerner at Eurasia Group, a consultancy, sees one ray of hope. The economies of Mexico and Central America are closely tied to the US, but he notes that countries like Brazil, Peru, Argentina and Chile “may start growing before the US is back in good health. For a lot of multilaterals, that’s very attractive.”