Summary:With so much volatility in its past, no one wants to be the first to assert firm predictions about the economic future of Latin America. Recent trends have indicated positive growth and progress in the region, but as Abe Lowenthal explained "…it is hard to separate the froth from the lager." It is easy to be ambivalent about Latin America′s future. There has been tremendous progress in some ways and decline in others. What is for certain is that significant institutional reform must take place in order for the region to truly grow.
When looking at Latin America versus other economies, there has been, on average, lower and more volatile growth than other major world regions since 1980. The good news is that in 2004 for the first time in a long time, all major Latin American economies are showing GDP growth, among other economic factors. In Argentina, a nation hard hit by economic crisis, the intended policies of the Kirchner administration have brought about a trend of GDP growth (8.7 percent last year) increased private deposits, the creation of two million jobs, large exports of intermediate goods, and a fiscal surplus a the central bank. The question remains as to whether this growth is here to stay.
However, in the words of Liliana Rojas-Juarez, the future of Latin America is "…indeed predictable." There is a continuous boom bust cycle that has been consistent over past years. While the region is experiencing a boom now, the move to a bust will be prevented only when governments stop borrowing more during "the good times." They should use positive economic performance times as an opportunity to create insurance policies and reduce debt, borrowing only in their own currencies. Some countries, such as Chile, are doing just that in the current positive GDP growth trend.
One of the most pressing issues for the region is social and economic inequality, which is a greater issue in Latin America than it is in any of the other developing world countries and developed Asia. This makes it difficult for countries to implement fiscal policy and provide public goods. The result is a return to favor for more populist government regimes, restricting the progress of democracy in the region. Mexico provides a great example of this, where the true effectiveness of the current democratic government is limited by a continuously divided congress.
Additionally, Latin America is losing its technological and economic advantages to Asian countries. Exports tend to be much less value-added goods, which along with the existence of natural resources, reduces the incentive for education and technological progress. Technology in terms of personal computer use lags behind developed Asia.
In terms of economic reform, Chile scores the highest in categories such as privatization, deregulation, basic needs, infrastructure, etc., with Mexico and Brazil following, the lowest being Venezuela. Argentina is doing everything it could possibly do to move out of crisis. Still, the region carries moderate to high country risk. For instance, three of the largest commercial banks hold 50 percent of all assets. This is troubling as Latin America does not have a capital market system. Most debt is government debt, and little financing is available to the private sector. Without financing available to firms, progress is inordinately difficult.
Continued growth is indeed possible in Latin America, but major structural reform in the region is required for it to get ahead. In some ways, Latin America is more prosperous than other developing countries, but it is losing this advantage, along with technological advantages to Asian nations. The worst income distribution and social issues plague that region′s nations, preventing true political and economic progress. While growth is positive over recent months, Latin America "obscures more than it reveals." Thus, it is hard to accurately predict where the region will go.
