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Economic malaise behind Latin America’s year of unrest

Economic malaise behind Latin America’s year of unrest

Weak efforts to diversify and invest are a common thread through period of turmoil

While each of the crises breaking out across Latin America has some unique characteristics, there is one overarching reason: this is the world’s worst-performing region in terms of economic output.

“Latin America is just not growing,” said Shannon K O’Neil, senior fellow for Latin American Studies at the Council on Foreign Relations in New York. “So the pie for everyone to share is not getting any bigger . . . It is not about ‘are they going left or right’ — even the best politicians are finding that there is not a lot to hand out, there is not a lot to work with.”

Chile is perhaps the best example of this phenomenon. Although it is one of Latin America’s best economic performers this year and frequently cited as a model of good macroeconomic policy, the capital Santiago experienced its worst violence in three decades last weekend as citizens vented their anger at entrenched wealth inequality and the high cost of living.

“Chile’s problems are more to do with the expectations that come from success,” said Nicholas Watson, Latin America managing director at the consultancy Teneo. “Standards have become higher and . . . the last administration and this administration do not offer anything fresh, any vision for the long-term economic future of the country.”

If only other countries in Latin America had Chile’s problems. The latest IMF world economic forecasts, published last week, painted a miserable economic picture for the region. Instead of growing 1.4 per cent this year, as the fund predicted only six months ago, it now believes Latin America will manage just 0.2 per cent — and that forecast was made before the latest turmoil hit Chile and Bolivia.

Venezuela’s implosion under the revolutionary socialist government of Nicolás Maduro is part of the problem: the economy is set to contract by one-third this year, continuing a man-made collapse which is unprecedented in the region outside war or natural disaster.

The global trade war is sometimes cited as another culprit for Latin America’s weak performance. But the emerging nations of Asia will still manage to grow at a 5.9 per cent clip this year, down just a fraction from what was expected in April. As for Africa, the IMF predicts it will grow 3.2 per cent this year, or 16 times faster than Latin America.

What is going wrong?

There is no single answer but the most commonly cited explanations are an inability to diversify away from commodities exports, a failure to invest in infrastructure and education during the commodities boom, high levels of corruption and weak rule of law and — with the exception of Mexico — no opportunity to plug into global manufacturing supply chains.

The prospects are dim. The IMF’s forecasts for the next five years predict that almost all of the continent will grow below the global average for emerging market economies and large nations such as Mexico, Argentina and Venezuela will not even match the sluggish performance of the world’s developed economies.

As always, the gloomy regional picture hides some brighter news. Peru, Colombia, Bolivia and Chile will all deliver respectable growth of between 2 per cent and 3 per cent this year. Brazil’s bold and radical economic reform programme offers much promise, if it can survive the political turmoil of the Bolsonaro presidency. Colombia’s efforts to promote the tech industry and diversify its economy deserve greater recognition.

But it is a sad comment on Latin America that its fastest-growing economy this year — Panama, at 5 per cent — is also one of its smallest.

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