Latin America is caught in a trap but has hope
Two phenomena impacted in 2015 the economies of the region and, together with other political and social issues, all aspects of the lives of its citizens.
- Thursday, 31 December 2015
The curse of raw materials hit Latin America strongly. Its exporters felt the effect of the global economy shifting to a lower gear and buying less oil and rubber; copper (Latin America holds 45% of the world's reserves), iron and tin; wheat and soybean (56% of all soybean), as well as cocoa, coffee and oils.
The second phenomenon speaks Chinese. China's economic slowdown has made apparent the degree to which certain Latin American economies became "absolutely dependent" from China - Uruguay and Argentina for soybeans, Brazil and Venezuela for oil, Colombia, Peru and Chile (for copper and iron). Latin America holds and grows what China needs (bilateral trade grew annually by 23%), and China has plenty of capital. Chinese loans, which recorded last year a 71% increase, kept crisis countries and those in recession, like Argentina, Brazil and Venezuela afloat, and supported many of the smaller nations, like Ecuador, Guyana, Costa Rica and Panama.
There is the trap, and it goes beyond the economy. China, called often in Latin America "The largest bank in the world", has a handle on infrastructure projects of governments. This increases the risk that the former renege on their commitments not to destroy forests, rivers and the great Latin American resource that is its ability to produce clean air and water. Totally defenseless against the pressure of Chinese companies and financing are Amazon populations still living in voluntary isolation in wanted areas.
Dependence on China showed clearly in 2015 the negative outcome of economic policies that reduced the number of trade partners rather than diversifying them. Such was the case in Argentina, Venezuela, and Ecuador. "Latin America needs to achieve a greater degree of product diversification, modernization and integration," said recently Mario Pezzini, Director of the OECD Development Centre, at the Latin American Conference in Cartagena.
Argentina and Brazil recorded negative growth, worse than Ecuador's 0.4% and Uruguay's with 1.6%. Along the Pacific coast, the Mexican tiger roars quieter now with a 2.5% GDP growth. Peru and Colombia scored over 3%; nobody came close, however, to Bolivia's 5%.
Even so, things could change politically in Bolivia. President Evo Morales would like to go for a third term, but according to surveys 54% of Bolivians would not want to re-elect him. In two years' time, this could almost completely dismantle Latin America's socialist front, which in 2015 lost partially another member, Venezuela.
Cuba remains the reference point, but again, day after day, the island changes subtly but unyieldingly. Now there are, for example, 150,000 people surfing every day the Internet, according to Cuba's telephone company ETECSA.
A major political problem in the by now well-established democracies of South America is corruption – and it bears serious economic consequences. Last year was a bad year in terms of corruption and influence peddling. Corruption is crippling Brazil, the emerging country that seemed to be firmly on the path toward true stability. The impeachment flag waved against President Dilma Rousseff, even if by a declared enemy in Congress, scared investors.
Also President Michelle Bachelet of Chile, the most stable country in Latin America, was involved in a scandal with her son. In Argentina, corruption was a key factor in the victory of the centrist Liberal Mauricio Macri. Elections in Argentina and Venezuela in 2015 sign that people are no longer as willing as in the past to put up with corruption or to consider it unavoidable or part of the system.
Widespread violence was another key factor in those two elections, and continues to put a drag on daily life in many economies, including Colombia and Peru, not to mention Mexico, where violence is taking a toll on the emotional balance of children, and creating ghost towns.
There is hope that the difficult peace process in Colombia between the State and guerrilla forces, which claimed in 50 years tens of thousands of lives, will be successful. (FARC's financing flows mainly from drug trafficking).
Political and economic events in 2015 reminded how fragile social achievements in Latin America are if not consolidated. Mexico and Chile hold the largest gap between the richest and poorest. However, a recent study showed that in Chile, for the first time, a 47% of the population classifies within the middle class (if the lowest middle class wage is considered to be the equivalent in local currency of approximately 17,500 Euros). The poor are now only 7.8%. In Latin America this is a major change.
In the hills of the Peruvian capital Lima, however, a 9 feet high wall now divides the shacks of Vista Hermosa slum from the opulent homes in neighboring Las Casuarinas.
Social inclusion and bringing down the "walls of inequality" across the continent are Latin America's great challenge. Succeeding will depend above all on political action, as well as on the economy, but also on the ability to avoid getting caught in others' traps and in self-built ones. Events in 2015 showed that Latin Americans are less complacent, resigned and tolerant with bad policies. The challenges are as high as the Andes, but optimism grew.