Things have been quiet around the Latin American desk at the office these days. While we have been diligently analyzing GDP results and budget plans and tweaking economic forecasts (often upward) our colleagues in the Western Europe and Middle East teams have been rushing back and forth from client calls and television interviews talking about debt crises and political instability.
How times have changed. Last week the Colombian finance minister, Juan Carlos Echeverry, was in London talking about the creation of a sovereign wealth fund, increased regional integration and a fiscal rule which aims to balance the budget and reduce foreign debt below 30% of GDP by 2020. The London audience of businessmen, MPs, journalists and economists applauded and marveled with envy at Colombia’s economic outlook.
Despite the official end of the recession, Britons are still preoccupied by the challenges of the year ahead. The British government is preparing to implement sharp spending cuts (to reduce the deficit from an astronomical 11% of GDP), the debt crises in Greece and Ireland are threatening the survival of the mighty European Union and Britain’s own foreign debt is approaching 80% of GDP, around twice the size of Colombian debt. Europe’s ability to respond effectively to its current challenges is also in question. While high-income Colombians were sanguine about the recent extension of the wealth tax to pay for flood reconstruction, wealthy (at least by global standards) British students have protested, some violently, because they may have to pay an extra few thousand pounds to attend their world class universities. Who would have predicted during the Latin American financial crises of the late 1990s and early 2000s, that in 2011 the Chileans, Brazilians and Colombians would be cited for fiscal responsibility and effective social policies.
It is true that much of Latin America’s current good fortune is related to the commodity boom driven by Chinese and Indian demand for resources. On average, poverty and inequality in Latin America are higher than the poorest European countries and economic growth rates lag behind emerging Asia. However, we must acknowledge that Latin American leaders have learned from past crises and many governments have maintained pragmatic economic and social policies which are now reaping benefits. Poverty has declined and democracy is much stronger than ten years ago. Political unrest of the type seen currently in Tunisia and Egypt (also one of the CIVETS) is now uncommon in Latin America.
The political debate—while it still may seem banal and partisan to locals—is in some ways more pragmatic than in the US and Europe. Fiery rhetoric from major US political figures—including accusations that the Obama administration is both “socialist” and “fascist”–has divided Americans while raising tensions across the country. Meanwhile, political parties in Colombia have been having a generally healthy debate about tax policy, health care, land reform, victims’ compensation and social assistance. Compared to the early 2000s, this is a huge leap forward.
As we have seen, nothing is permanent and the world can change rapidly in these globalized times. Eventually, perhaps in this decade, China will face its own economic crisis and the resource boom will end. The big test for Latin America will be what happens then. Will Latin American analysts have to return their focus to debt facilities, default scenarios and collapsing governments? Or will we be highlighting the foresight of successful stabilization funds, investments in infrastructure and entrepreneurial innovators?