Economic Brief: Latin America 2010-2020
Latin America has the potential to become the next global power
The region suffered six years of slowdown and two of recessions as a result of the drastic decrease in the cost of non-renewable fossil fuel. However, 2017 has been a turning point; the region started to blossom again. New strategies for value-creation are being implemented which aim to create a self-dependent monetary structure for a new century; agricultural output and tourism are taking the lead.
Latin America is expected to grow by 1.2% in 2017 and 2.1% in 2018. Meaning a 75% projected increase in one year. The reasons behind this expected increase in general levels of output respond to Argentina’s unexpected growth in the first quarter of 2017, Brazil coming out of recession, and the continued expansion of Mexican economy.
The main frictions of the current regional development have known causes. For Chile, the standstill of the “Escondida” copper mine halted most of the national growth for the quarter. The nation’s copper industry accounts for 53.6% of its net exports, which show an alarming sign of exposure to social turmoil.
Most of the drawback on Peru’s development has been caused by climate change. The once arid and dry nation is now flooding constantly. The lack of appropriate infrastructure resulted in the absence of development. Brazil’s issue is purely politic; scandals regarding massive state corruption have lowered the nation’s governance index and high unemployment holds a continuous threat to international efforts to safeguard order.
In addition, Colombia remains a source of uncertainty. With the peace process being signed with local guerrillas, the future of the nation isn’t clear since it requires government spending the equivalent of 15% of the national 2016’s GDP over the next 15 years to fund the terms of the agreement. As a result, a financial stabilization was held through a general tax reform. Government spending will decrease and citizens will continue to pay the price for the deep cut in oil prices and a higher cost of living. Confidence in Colombia remains low.
Venezuela’s overall panorama seems compromised with the new constitutional process led by President Nicolás Maduro. The process has been criticized at an extent that the United States has signaled a strong position to sanction the South American country, a move that could transition the nation into a dictatorship.
The bright side of the region’s economy is brought by Ecuador, Bolivia, and Uruguay. These nations have shown intentions to shift into a sustainable economic paradigm. Ecuador has boosted government spending on infrastructure via tightened tax policies and social investment directed to a vulnerable population, today Ecuador has the best rate of change on their GINI Index (which measures inequality).
Bolivia is leading the growth in the region with a GDP totaling 4.85% in 2015. The nation has a clear mindset: a high level of international reserves to cut government debt to maintain traditional sources of export such as natural gas and crude, and an impressive advance on the systematic collection and export of coca leaves and soybeans.
Undisputedly, the current system that gives hopes about the future of the region is Uruguay. The export-oriented economy is rooting forward in their efforts to gain international momentum. Progressive laws as the embracement of recreational cannabis may boost an already succeeding economy by expanding its touristic appeal.
Given a number of critical risks, the outlook for Latin America is promising.
Latin American Post | David Eduardo Rodríguez
Copy edited by Susana Cicchetto