Tuesday, 07 April 2020 02:30

New challenges

Even before the first quarter of the year is behind us, Latin America is facing new challenges, with its economies dependent on exports to China and other parts of Asia likely to see a slowdown as a result of the coronavirus, while the slump in oil prices – the sharpest since the early 1990s – will likely dampen the revenues of those oil-exportdependent economies of the region.

tom ellacott of Wood MackenzieThe oil-price crash in earñy March deepened fears of a global recession as economies are already suffering from the fallout of the coronavirus, which in itself is expected to negatively impact dozens of economies across the globe. The 27-per cent drop in oil prices on March 8 came in the wake of Saudi Arabia’s announcement that it would increase production from April, following a decision by Russia to not join a plan by members of the Organisation of Petroleum Exporting Countries (OPEC) to cut production.

The price slump is expected to heavily impact the major Latin American economies such as Brazil, Mexico, Argentina and Colombia that are heavily dependent on their oil industries, and will bring further woes to Mexico’s state oil company Pemex, for example, already struggling with declining production and saddled with debt.

According to Tom Ellacott (pictured) of UK-based energy consultancy Wood Mackenzie, “the price collapse could be the trigger for a new phase of deep industry restructuring - one that rivals the changes seen in the late-1990s”.

Such a shake-up will likely put the brakes on new investment, possibly including the cancellation of contracts, or at least cost cuts and the imposition of austerity measures by both local, state-owned oil companies and global majors engaged in the region, actions which will undoubtedly involve many of the region’s law firms, given the importance of their energy practices.

Latin America’s economies were already bracing themselves for shrinkage, given the knock-on effect of the coronavirus, and particularly those economies dependent on China, and other Asian markets, for exports. 

Nicaragua may also see its economy affected by the US government’s announcement in early March that it has expanded sanctions against the Central American country, in light of alleged human rights violations perpetrated by the Nicaraguan national police.

And in anticipation of the transition from the London Interbank Offered Rate (LIBOR) as a universal benchmark interest rate in 2021, and the global effort to find robust rates to replace LIBOR and other interbank offered rates (IBORs) underway, law firm Mayer Brown has launched a global multidisciplinary task force to provide advice on the latest market developments and issues facing banks, companies and investors.

Iberian Lawyer
N.108 • October 2021

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The Latin American Lawyer
N.21 • September 2021

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