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Slower growth and more discontent
Óscar Ugarteche*
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The Latin American economies show noticeable economic and political dependence on international commodity markets in order to grow.

The region grew over 5.5 percent per year between 2003 and 2012, an average rate comparable only to that of the decades of the 1950s and 1960s. In both periods, the growth rates were accompanied by booms in commodity prices and were therefore reduced when demand for commodities decreased. This first occurred during the stagflation that hit the Group of 7 (G-7) countries in the 1970s and later during the stag-deflation of the second decade of the 21st century.
The press attributes the end of the 2012 commodities cycle to China’s slowdown. But, as China grows more than 7 percent while Europe, Japan and the United States grow by rates closer to zero percent, it is more likely that the latter is the true cause and that low growth could spread not only to Latin America and Africa, but also to Asia.

According to the Economic Commission for Latin America and the Caribbean (ECLAC) briefing paper “Latin America and the Caribbean in the World Economy 2014,” it is projected that “the value of regional exports will grow on average only 0.8 percent this year (2014) after increasing 23.5 percent in 2011, 1.6 percent in 2012 and falling 0.2 percent in 2013, while imports to the region will fall 0.6 percent in 2014 after having increased by 21.7 percent in 2011 and 3.0 percent in 2012 and 2013.”1
Decreased income distribution
The boom of the 1950s and 1960s worsened income distribution in the region and led to the surge of radical political movements of the left, first in Colombia, Guatemala and Cuba in the 1950’s and then in most of the rest of the region in the 1960s (Brazil, Uruguay, Argentina, Bolivia, Peru and Ecuador). These political movements were further fueled when the unequal income distribution froze without hope of improvement.  That experience originated the dependency theory and the concept of development of underdevelopment coined by André Gunder Frank.
Almost two decades went by until finally in the 1990s growth accelerated as a result of a combination of factors, including deregulation, privatization and the opening of capital accounts. This is how the phenomenon of triple arbitration began in Latin America. Once national economies were highly interconnected through international financial circuits, any significant change in interest rates, exchange rates and the stock markets of the largest economies caused a simultaneous effect on the economies of the periphery. Late in the first decade of the 21st century, the trend of financial uncertainty among the G-7 countries continued, whereby a significant price increase was also experienced.
The consolidation of the derivatives markets in March 2003 is critical to understand that boom. The second important factor is the decline in interest rates in the United States to levels slightly above zero in real terms (net of inflation). The third factor is the impact of demand from China, followed by the rest of Asia, who entered Latin America as important buyers and investors through bilateral free trade agreements — a case of tortoise beats the hare.
As a result, after the opening of capital accounts in the 1990’s, short-term capital flowed from developed economies to emerging markets with dynamic stock markets and debt instruments in local currency and high interest rates. Second, the market for financial assets and real estate was revitalized since 2000 due to the lack of incentives to invest in the United States due to very low real returns. Third, the large investment banks (too big to fail) started investing since 2003 in commodity derivatives, liquid financial assets, pushing commodity prices up to record levels.
The result of all this was that the per capita gross domestic product (GDP) in Latin America split into two growth groups: the GDP of the countries of the Caribbean Basin — closely related to demand in the United States — grew at an average cumulative rate of 14.3 percent between 2003 and 2012. The GDP of South American countries — more closely related to Asia, Europe and each other — grew at an average cumulative rate of 43.5 percent. Given the stag-deflation in Europe, Japan and to a lesser extent the US, it certainly is the relationship with Asia and the intraregional relationships that drove the growth in South American countries.
The stag-deflation in Europe, coupled with stagnation in the United States and Japan after the 2007/2008 crisis and the recovery of interest rates in the United States since 2014 due to the expected modest recovery, has resulted in a decrease of short term capital flows to the region, a decline in commodity prices and a readjustment of exchange rates, highly appreciated against the dollar for the entire decade.
The final result is an economic slowdown in both groups of countries. 
Growing social protests
Since the beginning of the 21st century, South America has been on a quest to solve the injustices of the neoliberal model. Countries began using post-neoliberal policies, including substantial increases in public spending, wage increases and the implementation of various programs against endemic poverty in Latin America. Brazil, Argentina, Venezuela, Uruguay, Bolivia and Ecuador are the countries taking part in this new trend. On the other hand, Chile, Peru, Colombia and Mexico kept neoliberal policies.
The notion that the market would generate growth and that earnings would trickle down to the rest of the economy did not work. The privatization of state-owned enterprises deepened. As a side note, this process was not conducive to a higher level of development — understood as a substantial increase in the quality of life of the population — which implies improvements to the provision of basic health services, education and housing, in addition to an improvement in environmental conditions, water and air quality, and in the quality of education to open the way for new generations amid the ongoing technological changes.
The most stubborn case is Mexico, where despite having almost no growth in the past 20 years, it continues, in a doctrinal way, to follow neoliberal policies. Mexico continues to move forward with the privatization of energy and now, apparently, the privatization of public higher education, as occurred at the National Polytechnic Institute at the end of September of this year. This conflict managed to enlist the support of other universities (UNAM, UAM, among others) and society at large to face the authorities’ attempt to undermine the quality of education (technification of the curricula at the expense of core subjects that create a more well-rounded education) of one of the top higher education institutions. The latest inverse case is Chile, which is de-privatizing pensions and education, is using wages to rapidly fuel growth and appears to be entering the post neoliberal phase.
The largest incorporation of women into the labor market, coupled with the increase in life expectancy of the region’s population — with the exception of Peru in relation to the latter — has created conditions to social demands previously not imagined. These have joined to the demands of the younger sectors of society who have educational restrictions, either because of the privatization of schools and universities or because of their decrease in quality in general in the region, but specifically in Peru.

Social protests have emerged in high-growth countries rather than in low-growth countries. That is, social protests are a product of the tensions created by the high growth that neither creates jobs nor improves the income of the working sectors. At the same time, the State fails to provide the services that the new actors demand.
In the low-growth economies, there is high structural unemployment and new youth unemployment. This situation — in addition to the general despondency because of the experiences of Central America and Mexico with armed uprisings in the past decades — seems to channel discontent towards organized crime (gangs, drug trafficking, femicide, guns for hire, gunshot deaths, etc.). 
In South America everything points to more social protests and greater demands on the State. The two epicenters of social protest are Chile and Brazil. In the first, students are demanding more from the State and in the second, the students demand a reversal of policies. There is no doubt that the 2013 Chilean elections pulled the new socialist government toward the left.
The social protests in Ecuador, Bolivia and Peru appear to be less oriented toward the reversal of policies. Because their cumulative economic growth rates are very high, their protests are more aimed against the environmental aspects of growth, known as the extractivist model, which has devastating effects for indigenous communities in particular.
Protests in Argentina, however, are a result of the effects of inflation (10 percent on average from 2010 to 2013) on the income of the middle class. While Argentina’s GDP per capita was the fastest to recover in Latin America, the price level has gone up, creating social discomfort due to the memories about inflation in Argentina, which, coupled with the authoritarian style of President Cristina Fernández, has polarized the society. I should add that in Argentina, the financial sectors have been adversely affected — something unique in the region. 
The decline in growth coupled with poor income distribution that was carried out in some countries may not continue. This can lead to two results: an accommodation to lower growth rates via increased informality due to lack of jobs offer or to a criminal boom. The reversal of policies will not change the external conditions that gave rise to the boom of the last decade, although it could satisfy domestic demand and domestic production conditions in countries that were more open.
In sum, the outlook for the countries of the Caribbean Basin, including  Mexico, Central America and the Caribbean  seems more delicate than for South America. The lack of growth in the last decade will be followed by stagnation.  Meanwhile, South America will experience slower growth but at much higher rate than its neighbors in the Northern Hemisphere. This affects migration flows which are reversing in South America but not in Central or North America, where these flows are slowed by the anti-immigration policies of the destination countries wiith negative consequences on the balance of payments.

*Peruvian economist. Coordinator of the Economic Observatory of Latin America (OBELA) of the UNAM’s Institute of Economic Research, Mexico, .Member of SNI / Conacyt and President of ALAI Ariel Noyola of the OBELA also contributed to this text.
1 “Exportaciones de Latam estancadas; México crecerá 4.9%: CEPAL” in T21.16/09/2014


Cumulative growth rate of GDP
per capita

Dominican Republic
Costa Rica
Trinidad and Tobago
El Salvador

Source: ECLAC


Economic growth rates by periods
(in percentages)
Latin America
Pacific Alliance

Source: ECLAC. Economic Survey 2014.



Economic slowdown leads to unemployment and labor informality. /
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