A new World Bank study is likely to raise high hopes in Brazil, Argentina, Peru and other South American commodity exporters. It says that, contrary to the recent conventional wisdom, raw materials can be the engine of long-term economic growth.
But is it true? Or is it World Bank wishful thinking?
The study, entitled Natural resources in Latin America and the Caribbean: Beyond Booms and Busts, and released earlier this week at The Miami Herald Conference of the Americas, contradicts the long-held belief that major increases in world prices of raw materials such as oil, natural gas or soybeans have led Latin American countries to spend way beyond their means and to go broke.
The new study claims that Latin America’s 2001-1008 commodities boom has lasted longer than any other in recent memory, and that there is no inexorable reason why it should end any time soon.
“The commodity bonanza is less likely to end badly for Latin America this time around,” World Bank economist Augusto de La Torre told the conference. “Countries that are rich in natural resources are being smarter in the way they manage their income, so that they don’t go broke when commodity prices go down,” he said.
De La Torre said that Chile is a case in point. Chile has saved the proceeds of its copper bonanza during good times, and has been able to maintain its social programmes and invest in new industries during lean times, he said.
He added that other commodity-exporting countries such as Peru, Colombia and Brazil, which are following responsible economic policies, may be following Chile’s steps.
In addition, most of these countries are using their respective commodity bonanzas to add value to their raw materials – turning crude oil into lubricants, for instance – and upgrade their exports. That is likely to help them achieve long term growth, he said.
Different view
But Harvard professor Ricardo Hausmann, a leading Latin America expert, told the conference that he is not very optimistic about the future of commodity-dependent countries. He compared the cases of Venezuela and Norway – two oil-exporting countries – to make the case that countries that rely on one export commodity remain poor while countries that diversify their exports become rich.
‘There are countries that have natural resources and don’t develop any other products, and there are other countries that also have natural resources but produce many other things,” he said. “That’s the difference between Venezuela and Norway.”
While Norway exports seven times more oil than Venezuela on a per capita basis, oil represents only 34 per cent of Norway’s exports because the northern European country is exporting several other goods. By comparison, oil represents 80 per cent of Venezuela’s export income, he said.
Asked about the theory that commodity exporters can grow and reduce poverty by specializing in their respective raw materials and upgrading them, Hausmann shook his head in disbelief. The countries that grow are usually those that diversify their export base, he said.
“Poor countries make few products,” Hausmann said. “Rich countries make many products, including products that are difficult to make and that few other countries make.”
My opinion: Even if the World Bank study is calling on commodity exporting countries to save for a rainy day and to add value to their raw materials, I’m afraid that it will send the wrong message to countries that rely on commodity exports. They will think they are on the right track.
Common sense tells me that countries that depend on raw materials don’t do well in the long run.
Contrasts
It’s no coincidence that some countries that have virtually no natural resources – including Luxembourg, Singapore, Taiwan and Japan – have some of the richest populations in the world, while countries that have huge natural resources – including Venezuela, Bolivia and Nigeria – have some of the highest poverty levels.
And it’s no coincidence that countries that have natural resources and have become rich – like Norway, Australia or New Zealand – have diversified their exports. The problem with commodities in South America is that, all too often, they are the only game in town.
© The Miami Herald, 2010. Distributed by Knight Ridder/Tribune Media Services.
