As the year comes to a close, it’s worth taking a look into the economic and political projections for Latin America that the Center for Democracy and Development (CDDA) in the Americas handles. Moreover, worth reflecting on the policies—or lack thereof—of the Trump administration and what the hemisphere can expect from it.
Starting with the economic, the CDDA team estimates that, on average, the region will grow only 2% of its GDP. Even excluding Venezuela, with an estimated exorbitant decrease of -11.5%, Latin America’s GDP will only grow 2.1%. Argentina’s GDP will also decrease (-1%). No economy will experience a GDP growth larger than that of this year; with the exception of Colombia, Brazil, and Panama, that have an estimated growth in 2018 of 2.7%, 1.4%, and 4.2% and projects one of 3.2%, 2.4%, and 5% in 2019, respectively. In important economies, such as Chile, Peru, and Mexico, the projected growth for 2019 is inferior of that of 2018, which will result in a slowdown.
Inflation, according to the projections from the report cited, will be under control throughout the countries in the region, averaging at 3.8% annually. This calculation excludes Argentina, which will see an annualized increase of 28%, and Venezuela, an unprecedented case in the world, which could experience annual hyperinflation of several million-percentage points.
The balance of payments—again, according to the report—will surplus only in Guatemala (USD 0.7 billion), Paraguay (USD 0.2 billion) and Venezuela (USD 2.6 billion). The case of Venezuela, a country with a crisis of humanitarian magnitudes, stands out as contradicting. Venezuela’s balance of payments surplus is a result, among other things, of the “default” or selective default of its external debt, in addition to the strict exchange-rate regime, a relative improvement in oil prices, and the increase in remittances from the growing Venezuelan diaspora to their relatives.
At the other extreme, the countries that will have a deficit higher than the regional average are Brazil (USD -27 billion), Mexico (USD -23 billion), Colombia (USD -11.2 billion), Argentina (USD -10 billion), and Chile (USD -6.2 billion). This represents a significant financial challenge to maintain the precarious equilibrium and the moderate growth of these economies.
Economic growth is critical for Latin America. To reduce poverty and cancel the social debt that accumulated with such inequality, it is necessary to grow on an average and sustained basis for more than a decade, at Asian rates (at the time when the latter region experienced growths above 7 and 8%, in the countries known as the “Asian Tigers”, given the progress and prosperity of their economies and society). The key, beyond commercial trade, is in investment volumes. Such investments are critical not only in the private sector, but also in hard infrastructure (communications, ports, airports, telecommunications, and public services), and soft infrastructure (education, health, training, and technology transfer).
The times when IDB President Luis Alberto Moreno talked about the golden Latin American decade are behind us. For second consecutive year, we are facing lean growth and fragile equilibrium, despite the important natural resources and the market potential of the region. On the other hand, the magnitude of the opportunity is monumental, if we think about the reduction of poverty and integration of shared markets or economies in the hemisphere.
This situation brings us to a critical matter at the geopolitical level: Does the United States have a coherent proposal of public, international, commercial, and development promotion policies that capitalizes this opportunity for reciprocal benefit? Have decision-makers considered the sensitivity of this scenario for Central America, as well as its migratory impact in the current context of violence in the region? Is there a cohesive strategy between the public and private sectors of the U.S. to, through economic diplomacy, achieve a position of impact in the region with shared benefits? The answer is No. So, is someone doing it? Who has foreseen such opportunity?
Spain has positioned itself in a good space in that sense, building favorable alliances for both parties. Particularly relevant is the figure according to which Spanish multinationals have derived most of their profits in recent years from their subsidiaries in Latin America. For example, José María Álvarez, now vice president of Banco Santander, admitted that the Latin American subsidiaries are saving the group’s global business, since they are losing money in Spain. “Of the total gains, 60% comes from Latin America, 21% from the United Kingdom and 17% from Santander Consumer Europe. The business in Spain, including Banco Santander España, the corporate center and the real estate division, does not generate profits,”said Álvarez in the committee of investigation into the banking crisis at the Spanish Congress.
This Latin American phenomenon as the main contributor of profits is repeated in Spanish corporate giants, such as Repsol and Telefónica. After the US, Latin America became the market where Spanish entrepreneurs set their sight. And Germany also has a large investment stock in the region, especially in Brazil. Nonetheless, the great commercial economic actor that impacts and grows throughout the region is China. Not only in Venezuela, where a leonine dependency has been configured, given the ineptitude of the Venezuelan regime to manage its natural resources, and has driven it to a devastating collapse.
China has been gaining space and is today the principal investor and creditor in the region. In terms of trade, in some countries it is about to displace the US. There’s no secret it is a State policy. Between 2015 and 2019, China set a goal to invest in Latin America 250 billion dollars directly and trade 500 billion dollars. Needless to say, the country has met its objectives.
Not withstanding, China’s participation isn’t always rose-colored. Not because its presence is accompanied by political and ideological influence, or because it represents a national security threat for the U.S., like could be said of Russia, also ready to enter the region. That’s not the case. China’s advancement is completely commercial: its objective is to guarantee supply of goods and raw material to sustain its growth and industrialization, and capture the Latin American market to place its products and services. In fact, it is usual for Sino-Latin American finances to be tied to conditions such as the guarantee of raw materials and the importation of Chinese products. Consequently, as many analysts warn, the growing Chinese presence stabilizes the region economically and financially, but perpetuates its underdevelopment by preventing the emergence of an industrialized economy or of added value with a Latin American stamp and origin.
Beyond this debate, there’s a reality: if things continue as they are, we could soon find ourselves pondering, Latin America or China America?
Para español lea El Nacional: ¿Qué puede esperar América Latina de 2019?
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