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Analysis
Latin America's rising stars

Latin America's rising stars

A measure of hope beyond the headlines

by David Smith

Tue 21 Apr 2015

You had only to glance at reports issued by the World Bank and IMF at the Spring meetings to diagnose the serious concern about Latin America.

‘Beyond Commodities – the Growth Challenge of Latin America’, was how the World Bank report was headlined. ‘Latin America, new challenges to growth and stability', was the IMF’s view of a region suffering from the fairly dramatic drop in the price of almost everything it boasts, from oil, to soya, to coffee.

Yet conversations with lead players revealed a back-story that offers hope of change, reform and policy that embraces the challenge of taking this current slowdown, and making it a tailwind for doing business differently.

'I firmly believe that the commodities crisis, if that’s the word, will turn out to be blessing in disguise for some of us,’ said Mauricio Cardenas, finance minister of Colombia. ‘The drop in the price of oil, for example, which affects us greatly given the million barrels we produce each day, is making us diversify the economy, and persuade other sectors such as agriculture to take the lead, and grow.’

Cardenas points to the way Colombia’s currency has been allowed to drop, down 30% since the oil price sunk late last year, and how his government has used past savings to invest in capacity-building. Those who should know confirm the Minister’s recipe.

‘There are two key elements for not just weathering this crisis, but learning and growing from it,' according to David Lipton, first deputy managing director and number two at the IMF. ‘Allowing exchange-rate flexibility, and investing in infrastructure, along with human capital.’

All of which is not news to  Alonso Segura Vasi, finance minister of Peru, who took the time to explain in some detail how his country is using solid reserves to invest ‘ambitiously and aggressively,’ his words.

In the past seven years Peru has doubled its spending on infrastructure, now at 6% of GDP. Human capital has been a key focus too, with 1% of GDP now dedicated to education, for decades an under-funded sector.

‘Reforms have to be country-specific, I would never suggest that one size fits all,’ he told me. ‘But we are promoting change in an aggressive manner, we simply have to invest in our future.’

Once again the best-informed witnesses conclude such politicians are making best use of the crisis created by the fall in the price of commodities, Latin America’s age-old  source of salvation. ‘Growth is not something we have a knack for in Latin America,’ says Augusto de la Torre, chief economist for the region at the World Bank. ‘But we’re seeing new rising stars, diversifying their economies and thinking longer-term, building for the future.’

What about the region’s economic giants, however? I raised Brazil and Argentina, both mired in an inflationary spiral, both facing negative growth, both run by heavy-handed, dogmatic and inflexible governments.

The silence was deafening when it came to Argentina. Not so regarding Brazil. ‘Brazil is doing what it has to do, in terms of allowing exchange-rate flexibility and fiscal consolidation,’ according to de la Torre.

That was very much the message that Brazil’s new Finance Minister, Joaquim Levy, brought to Washington. ‘We are prepared to sacrifice short-term gains for long-term growth,’ he told all who came to see him. ‘We will remain vigilant in the battle against inflation, and the campaign to build investor confidence.’

So, beyond the headlines, beyond those gloomy World Bank and IMF reports, just a measure of hope for Latin America.

‘Was the past decade, the golden decade of high commodity prices, was it sheer luck or policy at work?’ asked one World Bank economist. ‘Hard to say. But for sure we’re seeing some governments in the region realising at last that they can’t just wait for this price, or that commodity, to rise or fall. They have to make policy based on reforms that enhance growth.’

David Smith attended the Spring meetings as an adviser to OMFIF.

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