The End of Economic Promise in Latin America | International

Measuring economic success is, in theory, easy. If the Gross Domestic Product (GDP) grows, if inflation remains low and the labor market is strong. Even more successful is the economy that manages to increase productivity and per capita income, as well as one that reduces poverty or inequality. This was the success promised to Latinos at the turn of the century, and for a time the vision galvanized the countries. You have to work hard, the rulers said, but there will be fruit to be reaped.

The commodity boom that began in 2003 and lasted ten years helped reduce poverty and inequality. Millions of people entered bourgeois life for the first time and dreamed of an even better future for their children. They were confident their governments were investing the yields well, but were disappointed when export prices fell on global markets. As if that weren’t enough, corruption scandals have broken out that have discredited the political class and the parties to a degree that today seems irreparable.

For this reason, and for reasons specific to each country, Latin America seeks its own definition of economic success. What’s the point of increasing GDP if schools are falling apart? Who benefits from a strong job market if commuting to work is not safe? Why does it still depend on natural resources to generate wealth? They take the form of questions, but they are in demand and are fueling the social protests seen in different parts of the region over the past three years.

The most recent sample of stew, and perhaps the most emblematic, is that of Peru. On the surface, the confrontation is political. Thousands of Peruvians have come out to protest in support of former president Pedro Castillo, who was arrested on December 7 after a failed self-coup attempt. But the substance of the protests is fundamentally economic. The protesters, many of them of Indigenous descent and rural residents, are demanding representation in Congress, demanding that their children have access to an education of the same quality as the upper classes, and want a well-paying, formal job without having to transfer to the capital, Lima.

In the narrative of recent decades there is no more celebrated economic success than the Peruvian one. The country has reduced poverty and inequality more than any of its peers between 2003 and 2017. Those who study the case assure that the result is due, in large part, to the “bidirectional” separation of the management of the economy from that of politics . Judging by the country’s almost permanent political crisis, it is possible that this model is out of date. Peru has had six presidents in four years, and since the beginning of this millennium almost all have ended up in prison, on the run or marked by corruption scandals. Today, disgruntled Peruvians are calling for the convergence of the two paths, so that their political representatives look after their economic interests.

Nine other countries in the region have been rocked by the same corruption scandal as Peru: the case of the Brazilian construction company Odebrecht. The scheme, considered the largest and most extensive in the history of the multinationals, lasted 30 years and involved the illegal payment of bribes to Latin American officials in exchange for public contracts. This and other cases of corruption have eroded the political classes and eroded trust in governments, the same ones that try to charm their citizens with promises translated into figures of GDP and foreign direct investment.

The impressive growth that Peru experienced between 2003 and 2017 did not generate good opportunities for those living in the countryside, Peruvian economist Luis Alberto Arias, who was an official at his country’s central bank, recently explained in a conversation and today he is an academic at a couple of universities. “Reducing poverty is the great challenge we have because otherwise social instability will persist and the risk of falling to a radical government will persist,” he said. Over the past three years, analysts and candidates for public office have given me different versions of the same message: it is governance that is at risk.

We saw it in Chile, in 2019, when a citizen revolution led to the most ambitious constitutional process in recent times. We saw it in Ecuador, in 2019 and this year, when thousands of people suffered violent repression for calling for a more inclusive economy. We saw this in Colombia last year, when the government proposed raising taxes for a middle class with already limited purchasing power. Protests there raged for months, paralyzing entire sectors of the economy and resulting in a nationwide strike. (The same is true in China, by the way, where the government has promised social mobility in exchange for certain freedoms, a deal that is now falling apart.)

In 2023, unless global conditions change, Latin America will face an economic slowdown. This will tighten public finances and governments will have to maneuver to meet the economic needs of their countries. More than 200 million people, or 32% of the region’s total population, live in poverty, according to the Economic Commission for Latin America and the Caribbean (CEPAL). Of these, 82 million live in extreme poverty. Meanwhile, according to the World Inequality Report 2022, the richest 10% of Latinos own 55% of their country’s income.

This is an extraordinary moment for Latin America when governments that do not listen to social demands must wait for a reaction. It’s a time when the classic economic promise doesn’t fit the Latin American imagination.