“Will 2011 be the dawn of the Latin American decade?” asked the headline of a Standard & Poor’s webcast that piqued my curiosity last week. When I saw it, I wondered whether the Wall Street ratings firm was making a big blunder, or I was missing the biggest economic story in the region.
The Standard & Poor’s headline was only the latest of several optimistic reports about Latin America’s economies. All of a sudden, Latin America is becoming – after China and India – an emerging economic star.
A recent World Bank report, ‘Latin America: Beyond boom and busts?’ suggested we may see a new era of economic stability and growth in the region.
The UN Economic Commission for Latin America and the Caribbean projects that the region will grow by at least 4.2 per cent this year, following 6 per cent growth last year – strong performances compared to the US and European growth rates.
At a University of Miami conference the week before last, Alejandro Foxley, the respected head of the Chilean think tank CIEPLAN and a former minister of finance and foreign affairs, predicted that several Latin American countries may join the world’s advanced economies by 2020.
“We are likely to see Uruguay and Chile among the world’s advanced economies in 10 or 15 years,” Foxley told me. “And Brazil, Argentina, Mexico and eventually Colombia are likely to join them in the next 15 to 20 years.”
The Standard & Poor’s webcast noted that the ratings firm has recently upgraded several Latin American countries to “investment grade.” Just two years ago only Chile and Mexico enjoyed that status in the region, but they have since been joined by Brazil, Peru and Panama. Soon Colombia may join their ranks too.
Latin America’s growth is not just the result of China’s booming commodity imports from the region, S&P economists Joydeep Mukherji and Lisa Schineller said. The percentage of poor in Latin America has dropped from 48 per cent of the region’s population in 1990 to 32 per cent of the population in 2010, which is resulting in larger middle classes that help spur domestic growth and make countries less vulnerable to external shocks, they said.
But sceptics paint a more sobering picture of the region’s future.
Latin America is growing at less than half the rates of China or India; inflation rates in Venezuela and Argentina are about 30 per cent; the crime rates in Mexico, Central America and Venezuela are reaching all-time records; education and innovation standards are rapidly falling behind those of the rest of the world, and much of the region’s growth is based on world commodity prices that could tumble if China has an economic setback.
Over the past 10 years, Latin America’s dependence on raw materials has risen from 27 to 39 per cent, according to ECLAC’S figures. Instead of diversifying their exports and producing increasingly sophisticated goods, most countries are just exporting more raw materials, much like they did centuries ago.
Just as the Standard & Poor’s presentation was suggesting a “Latin American decade,” the World Economic Forum in Davos, Switzerland, released a new Global Competitiveness Index showing that with the exception of Chile and Barbados, there is no Latin American or Caribbean country ranked among the top 50 most competitive economies in the world.
My opinion: Despite new economic and political stability in countries such as Brazil, Chile and Peru, much of the current excitement about Latin America is optimism by default. The US economy is not yet out of the woods; Europe is a mess; the Middle East is boiling. And that means international economists are eager to see bright spots wherever they can find them.
Latin America is doing relatively well, mostly thanks to external factors. I hope I’m wrong about this, but barring a major move to improve its education standards and diversify its exports, this will not be the “dawn of Latin America’s decade.” With luck, it will be the start of an era of prosperity for a few countries, and the last two or three years of a cycle of externally driven growth for most others.
© The Miami Herald, 2011. Distributed by Knight Ridder/Tribune Media Services.