How Latin American currencies are impacting South Florida

By Ashley D. Torres

March 4, 2013

South Florida businesses can be directly impacted by the ebb and flow of Latin American currencies due to the close ties between the regions.

As the gateway to Latin America, South Florida has always been a popular destination for Latin Americans, especially for tourism, foreign investment and capital flight out of the region.

In early February, the Venezuelan government devalued the bolívar by 32 percent and eliminated its authorized system for foreign exchange. The elimination of the foreign exchange system means that Venezuelans do not have access to an open exchange, said David Schwartz, president of the Florida International Bankers Association.

“You have these changes which occur in Latin America, economic instability, political instability and the ebb and flow of exchange, but pretty much the impact here in South Florida is usually just short term in nature because we have such a long term relationship in Latin America,” Schwartz added.

The devaluation of the bolívar allows Venezuela to balance payments and economic distortion, and makes their exports cheaper, said Manuel Lopez, branch manager of Cambridge Mercantile Group’s Florida office. However, it also makes imports more expensive and could mean less South Florida goods being sent to the country, he added.

In the Miami Customs District, which stretches from the Florida Keys to Port St. Lucie, Venezuela ranks the No. 5 trading partner, with $6.7 billion in total trade in 2012, according to WorldCity.

The devaluation of the bolívar and the lack of an exchange system may impact many Venezuelans who were on the fence about buying property, Lopez said. It also impacts their spending in other areas, such as commercial real estate and direct investment in businesses.

In 2012, Venezuelan buyers comprised 7 percent of home sales to international buyers in Florida, according to the National Association of Realtors.

While the devaluation and lack of an exchange system is not an extraordinary situation, it can impact Venezuelans capability to take money out of the country. Many exchange money to U.S. dollars and keep it offshore, where the funds can be more stable.

Capital flight out of Latin America spurred international banking in the U.S. and resulted in the International Banking Act of 1978, Schwartz said. Miami is a popular location for international banking, especially for Latin Americans, who find South Florida strategically located and culturally able to meet their needs, he added.

According to Venezuelan newspaper El Universal, the country’s Finance Minister Jorge Giordani has not ruled out the possibility of creating an alterative exchange system. However, he said the previous system needed to be eliminated since it was fed primarily through the government and the state-owned oil company, Petróleos de Venezuela, S.A.

Some national companies have been significantly impacted by the devaluation of the bolívar, with Colgate-Palmotive saying it would result in a $120 million loss for the company, the Financial Times reported.

The impact of the real

The Brazilian real has seen incredible growth over the last five years compared to the U.S. dollar, Schwartz said. The positive growth of the currency, which is projected to increase about 3 percent this year, has benefitted South Florida tremendously.

A stronger real has meant Brazilians have more purchasing power and many have purchased homes in the tri-county area, helping to turnaround the local housing market, Lopez said. In 2012, Brazilian buyers comprised 9 percent of Florida home sales to international buyers, according to the National Association of Realtors.

Brazil is now the world’s sixth largest economy and a major trading partner with the U.S. In addition, it is the Miami Customs District’s No. 1 trading partner, with $16.4 billion in total trade in 2012.