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April 18, 2016
Next week will mark 204 years since Mexico, Spain’s richest American colony began its struggle for independence joining rebel juntas in Caracas, Buenos Aires and other cities in South America against the colonial rule. As well as marking this great success in Latin America’s struggle for political independence, many of the countries making up this region have more recent cause for celebration. Areas in which Latin America has certainly improved in include its economic growth, inflation levels that in general is in single digits, and perhaps more impressively a region that was once drowning in financial instability, seamlessly sailed through the global recession.
Accompanying this growth was a better standard of living and from 2002 to 2008 a mind-blowing 40 million Latin Americans out of the 580 million that make up the region’s population were lifted out of poverty. Recognised as one of the world’s most unequal regions, Latin American countries have almost all improved the distribution of income. The main reasoning behind Latin America’s successful recession ‘survival’ was partly due to good fortune but also to well-mastered policies. After the 1982 debt crisis, the region’s policymakers abandoned protectionism that had brought hyperinflation and bankruptcy. In their place the nations of Latin America adopted market reforms, opening up their economies to trade and foreign investment, privatisation and deregulation.
Rather than the sought after fast growth and stability, Latin America experienced a bumpy ride of intermittent instability especially from 1998 to 2002. Introducing more pragmatic policies such as flexible exchange rates, tighter bank regulations and social policies aimed at the poor translated into Latin America being able to ride these uncertain times, relatively unharmed. After a long, tiresome and difficult education, Latin America looks set to be graduating with a stronger and more resilient macroeconomic policy. This newfound stability can also be attributed to the fact that there has been over 30 years of democracy in almost all the countries of Latin America with nearly all fair and free elections. The main exception to this rule remains in Cuba and Venezuela as well as political uncertainty in Honduras and Nicaragua. Broadly speaking, Latin America can therefore be regarded as more democratic than it has ever been.
Although Brazil is often regarded as being in a league of its own thanks to its classification as a BRIC nation, the Pacific nations of Chile, Peru and Colombia as well as Panama and the United States neighbour of Mexico have recently been catching the eyes of investors. As multinationals encounter growing difficulties in China, many are looking to Latin America and not just Brazil, as an alternative. With 15% of the world’s oil reserve, a large stock of minerals, 25% of its arable land and 30% of its fresh water; it is easy to see its attraction to new investors. For a few years now, Chile, Colombia, Panama and Peru have been reaping the benefits of being rewarded with investment-grade credit ratings which has seen all four growing quickly in recent years. If Latin America continues to keep the growth of the past few years going, it is estimated that by 2025, the income per person will have double to an average of $22,000 a year at purchasing-power parity. Brazil by then could be the world’s fifth biggest economy behind only China, the United States, India and Japan and half a dozen countries in the region may have achieved developed country status; but only time will tell.
While some Latin American countries have found the enlightened path towards economic development there is still major causes for concern with the region’s figures often flattering to deceive the reality. Since 1960, Latin America has seen the lowest growth in productivity of any region in the world and this is mainly down to over 50% of all economic activity taking place in the informal sector. Despite recent efforts and some success stories at narrowing the income distribution gap, Latin America continues to be the most unequal region on the planet and has caused a growth in political conflicts and has stunted its growth. However, with such diversity in Latin America, it is often bound by generalisations with Haiti’s problems even before the earthquake being similar to Africa’s while on the other hand, Brazil considers itself not to be part of Latin America as they speak Portuguese. There are also obvious income and ideological divides with Venezuela and Cuba rejecting integration with the world economies and instead opt for state socialism and managing their trade although their economies have suffered for this. It is important to remember when analysing Latin America that while there are differences there are also clear trends and an identifiable majority that have embraced globalisation and are enjoying the benefits.
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