The regional economy was struggling long before Patient 0 appeared in faraway Wuhan. The second decade of the century was a stage of relative stagnation, in addition to wasting the previous cycle of high prices for primary goods. But the figures for 2020, which differ from country to country, are chilling: GDP fell by almost 9.9% in Argentina (similar to what happened in Bolivia, Colombia, Ecuador, Mexico and Peru), with a softer drop in Brazil. (-3.9%), Chile (-6.1%) and Uruguay (-6.1) and even more so in Paraguay (-0.8%), according to IMF data. The recoveries of 2021 were abrupt and heterogeneous (it was to be expected: the stoppage had been almost total for a good part of the previous year), but then growth began to stabilize downwards and today the world’s main banks and independent analysts are warning of the danger of a global recession this year.
When the Covid-19 pandemic put us on the ropes, back in February 2020, the civilized world did not register the problem of inflation, extinguished between the early 80s and mid 90s and turned into a marginal phenomenon of poorly governed countries (like ours) that ignored academic research and the success of multiple programs of stabilization and institutional reforms, such as the independence of central banks. The record growth of the money supply in the United States and the disruption of supply chains meant that just two years later, 71.4% of developing economies and 44.1% of advanced economies exceeded 5% per year, according to The Return of Global Inflation, by Carmen Reinhart and Clemens Graf von Luckner. The inflationary dynamics worsened due to the Russian invasion of Ukraine, although there is hope that a downward trend will consolidate in the world throughout 2023.
It is The conflict also boosted energy and food prices, which benefited to some countries and sectors, although on average the deterioration caused by the pandemic deepened in the region. Everything is complicated by the increase in the cost of financing, the main consequence of the interest rate corrections ordered by the Federal Reserve, replicated by the main central banks and which impacts the countries and companies with the most debt. Likewise, the strengthening of the dollar resulted in a series of competitive devaluations: the volatility of the currencies encouraged a migration of investors towards assets with more solvency (fly to quality), which hit emerging markets above all. The heart of the problem was fiscal in nature. The coronavirus produced a perfect storm: it forced a notable increase in spending (health policies and bailouts for the private sector) in the face of a collapse in revenue due to the paralysis of a large part of the economy. Many governments appealed to borrowing or issuance. In Latin America, the resulting inflation wreaked havoc on poverty and indigence rates and inequality.
The deepening of tensions with China (which daily adds chapters, such as the question of the balloons) opens notable and even unprecedented opportunities for the region, which has surplus and strategic natural resources in terms of food and energy security (including conventional and non-conventional sources and comparative advantages in terms of solar energy, wind and green hydrogen). In addition, a change in the logic of globalization diversifies value chains to reduce dependence on the Asian country. Offshoring is replaced by nearshoring or friendshoring, which promotes investment in closer countries that do not represent strategic competition for the United States. Joe Biden ratified it last Tuesday: reshoring (the return of production to the original geography) is pivotal in his economic strategy. The Democratic version of MAGA (Make America Great Again).
The Covid-19 exposed the strong limitations of the States to face a challenge of this nature. Lack of criteria, absence of unified policies… Ideology and voluntarism influenced the responses, often absurd and exaggerated. Over time, “best practices” prevailed, and even China discontinued its policing model. A light in the midst of so much darkness: donations through programs like Covax showed a new form of diplomacy. The West not only distributed the best available vaccines: the most important private laboratories relegated the alternatives from Russia or China, which soon fell into disrepute.
The pandemic worsened the stagnation of democratic development in the region: today only two countries are considered “full democracy” according to the Democracy Index 2021 prepared by The Economist Intelligence Unit: Costa Rica and Uruguay. Four qualify as “authoritarianisms” (Haiti, Nicaragua, Cuba and Venezuela) and another seven as “hybrid regime” (among them, AMLO’s Mexico). Argentina? A “deficient democracy”. The political-institutional deterioration is devastating. At the same time, the wave of conflict is growing: the violence in the transition of command in Brazil, the governance crisis in Peru, the weakening of Lasso in Ecuador, questions about the peace process in Colombia, the whimsical imprisonment of one of the main opposition leaders in Bolivia, the continuous violations of human rights in Venezuela and Nicaragua and a long etcetera that includes the attack against the Supreme Court in our country.
Relative tranquility is relegated to Uruguay, an oasis of rationality, democratic culture and common sense. The “little country” leads or reaches the podium in all World Bank governance indicators: accountability, control of corruption, political stability, absence of violence or terrorism, government effectiveness, rule of law, and quality of regulation. Without detracting from its merits, a portion of this success is due to the prevailing blunders in the neighborhood, particularly in Argentina: to the traditional flight of capital we have added in recent years those of talent, success stories and entrepreneurial spirit.
Chile was part of this select category until the social protests of 2019: despite the “success” economic growth and the pragmatism of its political class, discontent amassed over the scarcity of mechanisms for upward social mobility and the prohibitive cost of health and education. The pandemic deepened the demands and galvanized a society that this year has the opportunity to debate the rules of the game in the context of the new constitution to put the country back on the path of development.
Last Sunday in Ecuador and at the end of last year in Brazil the trend was confirmed of the incumbents to lose elections, another aspect that the Covid deepened. Surely Santiago Peña will soon make Paraguay the exception. But the few other governments that seem to escape this dynamic stand out due to the predominance of Cesarist presidential leaderships that eroded the institutional framework in extremis, such as El Salvador or Mexico. Some observers suggest that the leftist candidates are becoming more competitive in the region as a whole. In reality, a healthy alternation in power is imposed. The first polls of intention to vote in Argentina for next October confirm this trend: the electoral ceiling of the ruling party oscillates around 30%.
