Consolidating Latin America’s Gains

Andrés Velasco
. Cuba car



SANTIAGO – At the time of last year’s failed coup in Turkey, I emailed a Turkish friend expressing concern. His answer left me thinking. After a somber review of events in his country, he concluded: “You are very lucky to be in Latin America, even though it may not seem that way sometimes.”
 
We Latin Americans are complainers. We shudder to think that other people’s lot could be worse than ours. But if a Latin American views today’s world objectively, it’s easy to understand why many would consider us fortunate.
 
Terrorism is on the rise in Europe, just as Colombia’s civil war, the region’s last, is ending.
 
Argentines, Brazilians, and Chileans of my generation grew up with heavily armed soldiers patrolling airports, train stations, and other public places. Today we see the same in Brussels, Paris, and London, not here. Compared to US President Donald Trump, some of Latin America’s populist politicians seem almost competent and well informed.
 
But this is not the first time Latin Americans can feel this way. As Carlos Díaz-Alejandro, the great Cuban-American economic historian, put it:
 
“Reviewing the 1930s and 1940s, most Latin Americans could feel lucky, at least relative to the rest of humanity. The Spanish and the Chinese Civil Wars, World War II, the depth of depression in the United States, Stalinist purges, the political dependence of Asia and Africa, and the pains of decolonization in India and elsewhere could be viewed by Brazilians and Mexicans as remote events that could not happen here any more.”
 
The sharpest contrast was political. “In contrast with the ideological, religious, and ethnic frenzies of Europe, India, and even North America,” Díaz-Alejandro continues, “most Latin Americans viewed themselves then as tolerant, a view largely correct at least in relative terms, and demonstrated by the many refugees who found a haven in the region.”
 
The year 1948 saw the outbreak of “la violencia” in Colombia; today we witness the murderous persecution of President Nicolás Maduro’s political opponents in Venezuela. Political repression was common in Central America back then, and remains common in Cuba today.
 
But they are the exceptions that confirm the rule. Just as “the 1930s and 1940s witnessed little political bloodletting in Latin America,” in Díaz-Alejandro’s words, the same is largely true today. Our democracies remain imperfect, but the region’s increasing political stability is undeniable.
 
We have had our share of wild-eyed populists recently. But with the exception of Venezuela, where authoritarian chavistas remain in power despite massive opposition, populism is on the wane. In Ecuador, former president Rafael Correa managed to get his handpicked successor elected, but low oil prices and dollar shortages make a turn toward policy moderation quite likely. In Argentina, President Mauricio Macri, who ousted the Peronist-populist Cristina Fernández de Kirchner, remains popular despite an inevitable economic adjustment and slow growth.
 
The 1930s and 1940s were a time of great social and political change in the region. Migration from abroad and from the countryside to the city gave rise to a new urban middle class employed mostly in government-related jobs. The political clout of traditional land-owning elites declined, and powerful new working-class-based parties began to emerge.
 
Today, a new middle class – employed mostly in private firms – is on the rise. In many countries, consumption has been booming, even as economic growth slows. Shopping malls crop up in newly built suburbs, and Facebook has made it to the smallest Andean village.
 
Economic inequality remains high, but income disparities in Latin America have been narrowing for nearly two decades, just as they widened in the United States and Europe.
 
There are other economic similarities with the past. One is the trajectory of commodity export prices, which increased through the late 1930s and 1940s, following the Depression-era collapse.
 
They likewise increased after the 2008-09 crisis, peaking in 2015. In both cases, deciding what to do with the surfeit of dollars was a key policy choice.
 
Because the 1940s were, in Díaz-Alejandro’s words, the “golden age of import-substituting industrialization in Latin America,” the increase in export values and the compression of imports meant large trade surpluses, which were often used to repay debt. Today, by contrast, most local private sectors have been borrowing abroad to finance what were, until recently, rising current account deficits. Large stocks of dollar-denominated debt remain a key vulnerability.
 
As Latin America entered the 1950s and new export sectors failed to emerge, dollar abundance turned into dollar scarcity. Boom-bust cycles and currency crises became common. In what remains of this decade, the region’s policymakers will have to work hard to ensure that it doesn’t happen again, especially as rich-country central banks normalize interest rates and capital flows threaten to turn back toward the advanced economies.
 
A key to the relative success of Latin America in the 1930s and 1940s was the willingness to throw out old orthodoxies and experiment with new policies. In response to the Great Depression, most countries abandoned the gold standard, developed new exchange-rate arrangements, and tried novel policies to stimulate local industry. “Latin American economic thinking came into its own during the 1940s,” writes Díaz-Alejandro. “The creation of the United Nations Economic Commission for Latin America was the major impetus behind ... fresh economic approaches.”
 
Fresh thinking is also needed today, to sustain Latin America’s recent political and economic gains. The turn away from populism is anything but assured, especially if economies do not start growing again soon. With the commodity boom unlikely to return, Latin America urgently needs new export products – and here a bit of modern, if unorthodox, industrial policy could prove useful.
 
Politics also needs to be shaken up. Public dissatisfaction with traditional elites and parties is on the rise. Successful new political vehicles like Macri’s Propuesta Republicana (PRO) are still the exception. The political opening that occurred in many Latin American countries in the 1930s and 1940s eventually gave way to the political disarray of the 1960s and the dictatorships of the 1970s and 1980s. We must not allow that to happen again.
 
 

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