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The Challenges of Latin America

challenges_latin_americaThe Challenges of Latin America is an investigation by Nicolas Albertoni GCL, 2012 – Uruguay (Researcher at the International Business Department of the Catholic University of Uruguay) and Julio Clavijo GCL, 2012- Ecuador.

Beyond everything that was said during 2012, this year has started with considerable changes around the world economy. This new era could be described as a post-financial crisis world where a shift on the economic geography around the globe has transformed the core of international trade from the Atlantic to the Pacific, specially the South.

The data speaks for itself, according to ECLAC, by 2017 South-South trade will be higher than North-North considering that in Asia about 800 million people are entering to the middle class[i]. This means that if you live in Latin America this process should not be strange to you. Nevertheless, most of our contemporaries take this process for granted.

With this new scenario, the analysis goes further whether seeing the region is prepared to face the challenges that lie ahead or not. There are still a number of challenges that need to be faced if we want to make a big leap forward and arrive towards true development. Among these challenges we find: Economic development models, Violence-Insecurity levels and long term strategies-goals.

Within the economic development models, there are two clear trends: Open/pro market economies and closed/statist economies. Among the open economies we find countries such as: Colombia, Peru, Panama, Chile, Mexico and Brazil as the fastest growing economies within this block. Hence, according to the projections Panama, Peru and Chile will grow the most in 2013. Panama, after closed 2012 with a 6.9% of growth, it is expected to exceed an 8% growth in 2013. The gross domestic product grew at a 7.1% annual rate in Peru in the last 6 years and is forecasted to rise 6% in 2013. Chile could have a growth of over 4% next year. In general, in 2013 the region will grow 3.5%, above last year’s 3% but below 5% before the crisis.[ii]

In the other hand, we have the closed/statist economies such as: Venezuela, Bolivia, Argentina, Nicaragua and Ecuador among the most representatives. Recently, in order to control inflation countries such as Venezuela, Argentina and Ecuador have implemented price control regimes among first necessity products in order to avoid rising prices, which has been affecting their economies lately. Most of these countries have moderate growth levels between 3%-4%, mainly due to high commodity price levels. Even though they are growing, most of their stability depends on their commodities prices and fiscal spending rather than an increase on productivity.

Beyond the fact that all countries do not need to have the same strategy; the disparity of regional models could have an effect that could eventually have a high cost on Latin America. Under the international eye, it is clearly seen as a continent divided in two. It is imperative to understand that the free movement of goods, services, and factors of production are key elements in attracting foreign direct investment and thus economic growth.

Another problem that the region faces is the increasing levels of violence and insecurity. Violence and insecurity are forms of value destruction; hence they weaken property rights over produced goods and create little incentives to produce given the risk they present to entrepreneurs.

Latin America, with 9% of the world’s population, has 27% of homicides worldwide. According to Latinobarómetro, 10 of the 20 countries with the highest homicide rates in the world are in Latin America. Most of these insecurity and violence problems have been rising mainly due to the drug wars held up in the region, weak institutions-rule of law, and the poverty levels that the region still holds.

Finally, the lack of clear long term strategies and goals for the region are still a main concern. The region has improved it´s macroeconomic policies, 2009 crisis was a sort of “final exam” that seems to give the region a sense of stability.

According to CAF last report “Visión para América Latina 2040” the region should plan as a whole a long term vision for saving and investment in the upcoming 20 years if they want to keep up the pace. The report is a warning for all the leaders among the region, a call to wake up from the self-fulfillment position they have reached that everything is ok, when the reality shows that it is not.

Some people might have started to talk about a “Latin American decade”. In this sense, a special report of the region on The Economist signals out that “if the region can keep up the growth of the past few years, it will double its income per person by 2025 to an average of $22,000 a year at purchasing-power parity. By then Brazil may be the world’s fifth-biggest economy, behind only China, the United States, India and Japan. Half a dozen countries may have achieved developed-country status, with an income equivalent to Spain’s today.”

A great opportunity lies ahead for Latin America that can benefit not only the region, but as well the whole world. If we want to seize it, it is time to develop joint strategies and plan as a continent in order to arrive to a maximizing common goal which is development. Let us be that generation that can face those challenges, by transforming the region of hope into the region of freedom and wealth.

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Sources:

[i] ECLAC ( 2012) “China y América Latina y el Caribe Hacia una relación económica y comercial estratégica”, Ed. Comisión Económica para América Latina y el Caribe (CEPAL) Santiago, marzo de 2012. http://www.eclac.org/publicaciones/xml/9/46259/China_America_Latina_relacion_economica_comercial.pdf

[ii] WORLD BANK (2013) “Latin America will grow in 2013 despite global crisis”, April 18, 2013, feature story.  http://www.worldbank.org/en/news/feature/2013/04/18/economia-latinoamerica-2013

Comentarios

2 comentarios to “The Challenges of Latin America”

  1. Profile photo of Alexandra Diaz Montenegro

    I agree completely. To the list of challenges I would add the following:

    The central bank of Brazil has marked that part of the recent economic behavior of Latin American economies has coincided with an increase in prices and volumes of exported raw materials to China and other Asian economies.

    An increase in revenue through this channel at this time of economic depression can be considered a blessing (good timing I would argue). Our economies cannot be content with an increase in exports of low added value products. A richer export basket is needed. What if instead of the cotton we export the t-shirt to China? Sounds like a dream, nevertheless at GCL I learnt to think outside the box.

    Regards to the GCL family.

    Alexandra Diaz Montenegro (GCL 2011)

    Posted by Alexandra Diaz Montenegro | 01/05/2013, 10:08 am
  2. Profile photo of nicolasalbertoni

    Alexandra, thank you very much for your comment. I am totally agree with you. I also add that this “increase in exports of low added value products” that you mentioned it is finishing and we didn`t taken advantage of this time to promote strategic policies. This is another problem we will face in the coming years.
    Again thank you for your comments.
    The multiplier effect of GCL, is achieved precisely to share ideas with others.

    Posted by Nicolás Albertoni | 13/05/2013, 7:31 am

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