Home Op-Ed Beatrice E. Rangel Latin America ‘Unfortunate’ Economic Rebound

Latin America ‘Unfortunate’ Economic Rebound

Latin America ‘Unfortunate’ Economic Rebound
City lights of South America continents at night from outer space 3D rendering illustration. Earth map texture provided by Nasa Earth map texture provided by Nasa from https://visibleearth.nasa.gov/collection/1484/blue-marble?page=2.. Energy consumption, electricty, industry, power supply, ecology concepts.

MIAMI – The most recent regional economic outlook by the International Monetary Fund seems to herald an upcoming swing for Latin America and the Caribbean. The event would fly on the tailwinds of two quite unfortunate developments.

Mismanagement of the COVID-19 pandemic comes first. This has claimed 4.9 million lives globally while infecting 243 million individuals. In the region the death toll as of October 18, 2021, is 1.5 million which represents about 31 % of the world total. But failed public policies have had an unexpected side effect: the attainment of the herd immunity status faster than countries that performed better in terms of death tolls and infected people.

Reaching the heard immunity liberate Latin America of many burdens including the most obvious which is the collapsing of regional health care systems. Also, worker in the informal sector can now safely reinsert themselves in the labor market. The region can thus concentrate in redeploying most informal workers into trade related chores at lower costs than most countries.

The second driver is the ongoing spike in demand for commodities triggered, among other things, by the increase in worldwide poverty that is pushing consumption to the basic needs for at least the next three years. Commodities will also surge because of the developed countries’ push into green vehicles which will demand more metals than ever. Copper, lithium, titanium, and rare earth elements will be in high demand. Gold and silver will also benefit from a pesky-high global inflation triggered by huge cash infusions represented by countercyclical programs. 

Thus, Latin America could be on the doorsteps of another economic boom that could not only be a lifesaver, but reverses the brunt generated by the COVID-19 pandemic.

Indeed, numbers tell us the region is about to benefit from an unexpected twist in the global economy. The question that then arises is whether this recovery will become a development trigger or whether it will just be yet another link in the region’s boom to bust cycles.  In other words, the question is whether this economic growth cycle will break the peaks and valleys pattern to launch the region into a stable development mode thereby sparing its citizens from future precipitous falls in the gross domestic product, middle class drop and decline in quality and quantity of public services.

Answering this question demands a focus on Mexico and Brazil, the region’s largest economies.  Both have enough traction and penetration into the rest of the region as to generate positive change. Economic redeployment in these nations could generate the necessary momentum to push the region into a higher development stage.  Mexico seems to be poised to become the locus of U.S. nearshoring efforts. And while current president Andrés Manuel López Obrador seems enthused with the idea to go back to the times of Porfirio Diaz, his government seems to be deploying a pragmatic economic approach to public policy.

For one thing Mexico continues to adhere to fiscal virtue.  AMLO has also not only agreed but welcomed the Biden Administration proposal to reignite and to reengage in the High-Level Economic Dialogue (HLED), that facilitates the application of the Free Trade Agreement with the U.S and Canada. This initiative aims at establishing  the platform to support nearshoring. And through nearshoring the U.S. will experience a cost reduction in some of its manufacturing activities, while Mexico will benefit from a technology upgrade which is linked to electric vehicles and green energies.

As a result, Mexico will break away from the colonial institutions that promote rent extraction while negatively impacting wealth creation. These institutions began to fall apart under the strength of the NAFTA- fostered economic integration. As soon as the next century, Mexico could then look like the U.S. in the 1950’s. Brazil is quite another story. The administration of President Jair Bolsonaro have failed to market the benefits of his macroeconomic policies to the nation’s middle classes. Bolsonaro’s perpetual public feuds with the judiciary and legislative branches of the government is detrimental to constituencies: a political wave in favor of former President Luiz Inácio Lula da Silva is rising rapidly. Should this trend continue, while Bolsonaro’s support ebbs, and the country could go back to an era of corruption-oiled populism which could reverse Brazil’s development path. And a Brazilian decay would affect growth in Argentina, Paraguay, and Uruguay.

Thus, this century could end with Latin America divided two regions. One north of Colombia at full-development speed, and another trapped in the peaks and valleys growth model that brings development to a standstill. This region would encompass most if not all South America.


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