John Paul Rathbone
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The region is looking at a slowdown, but things could be worse, says John Paul Rathbone
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In the past 10 years, South America never had it so good. The continent surfed a global commodity price boom, helped by abundant global capital. In Sir Martin Sorrell’s clever marketing phrase, the 2010s were to be the “decade of Latin America”. Maserati dealerships opened in Bogotá, while Brazil minted 22 millionaires a day . Nor was it only the rich who gained. Poverty fell and, uniquely, social inequality shrank across the continent.
Like all good things, though, the party is ending. As commodity prices fall with China’s slowing economy, there is a new sense of anxiety. Everywhere, countries are vibrating with mildly suppressed panic – and the end of US quantitative easing does not help the mood. As the economic cycle turns, many governments seem confused as to which direction to take. Given how much has been achieved, there is often profound disagreement about what should come next.
Growth is already slowing fast, to just 1.2 per cent for the region this year. As the World Bank warns in its most recent regional outlook: “It is not clear whether the slowdown is bottoming out.” Levels of investment that had reached heights comparable to those in Asia, spurred by the “commodity supercycle”, are falling. Meanwhile, social protest is on the rise – through both the ballot box, as in Brazil’s closely fought election, and direct action, such as last year’s Colombian farmers’ protests or Brazil’s street riots. Everywhere, the region fizzes with social effervescence.
Remember the last scene in Thelma & Louise, when the heroines gun their car towards the cliff edge? No wonder polls show that most Venezuelans think President Nicolás Maduro should resign.
At the other end lies Chile, often taken as a model of sober economic management. But in just a year, the growth of its copper-dominated economy has slowed from almost 5 per cent a year ago to as little as 1.5 per cent in the third quarter. Santiago’s political atmosphere has turned poisonous and Michelle Bachelet has seen her ratings slide after last year’s landslide electoral win.
Between these extremes lie a range of experiences, and one big exception: Mexico. Unlike commodity-rich South America, it suffered rather than enjoyed the past decade. But now rising Chinese wage costs have lifted the competitive pressure on its manufacturing-led economy, and the terms of trade are turning in its favour. In time, despite serious security issues, it should deliver growth.
Old Latin American hands may feel: we have seen this all before. Nothing changes. Commodity booms come and go – and during the booms the region always seems to get ahead of itself. False hopes are a particular weakness. In Latin America, as Spanish philosopher José Ortega y Gasset wrote: “Everyone lives as though his dreams of the future were already reality.” But now that future has arrived and, sadly for countries such as Brazil, it is laden with consumer debt after a prolonged credit binge – another reason growth will slow.
Still, despite this rather gloomy prognosis, it is not all bad. There is a natural tendency to assume good things (such as more growth and more democracy) go together. Yet this is not always so. By the same token, it is also true that not all bad things go together.
Economic policy making – with some notable exceptions – has improved since the last cycle. Floating exchange rates are proving an essential buffer during the commodity slowdown. Most commodity prices remain historically high and global interest rates are still low (quantitative easing has ended in the US, but when will we ever see interest rates rise in deflation-drenched Europe or Japan?). Latin America is looking at a slowdown, not a collapse.
Crucial, however, will be how that slowdown is managed politically, especially with regard to the region’s newly emergent petty bourgeoisie. Some 50m people have joined the region’s middle classes in the past decade, and typically they hold down three jobs, look to the future and believe in the worth of educating their children. They pay taxes and, naturally, want greater government accountability, less corruption and better public services. How their demands are satisfied when there is less money to pay for them will require a spirit of open-ended and sceptical inquiry from politicians rather than the ideological certainties of the recent past.
“Se acaba la fiesta”: the party is ending. For a decade, many in the region congratulated themselves on their achievements. Some national egos grew to Amazonian proportions. Yet it was the false pride of most booms: many of those achievements were due to events elsewhere.
Now the freewheeling years are drawing to a close. Like a cyclist approaching the bottom of a hill after enjoying a long and easy ride, growth may slow to a crawl. There is another slope on the horizon and it will take hard work to get to the top. That is not the end of the world, though; it is the way with all hills.
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