Latin American Economic Resilience, Explained

One of the most important stories of the last few years in Latin America has been the region’s economic resilience in the face of the world economic crisis. It’s been the anchor of broad-based “optimism” in much of the region – even euphoria, to quote parts of a recent Infolatam report. So on a day of slow news, it’s worth taking a closer look at the Economic Commission for Latin America’s (ECLA/CEPAL) recently released report on Latin America and the world economy, entitled “A crisis generated in the centre and a recovery driven by the emerging economies.” Here’s the breakdown.

First, the principal reason for the Latin America’s economic buoyancy? The respected UN commission maintains that an uptick in regional trade accounts for much of the region’s recent economic success (and, for that matter, the success of many other economies which have generally weathered the impacts of the financial crisis), with Latin America and the Caribbean’s “best performance” coming from its most prolific “commodity-exporting countries” (see Brazil, most notably). In those countries dependent on tourism and remittances (Central America and Mexico, for example), recovery has been notably slower.

Second, the engine behind basic commodity exports? ECLA says turn our eyes toward demand in China (and Chinese investment in Latin America), which has hardly missed a beat over the last two plus years. Many economic predictions say Chinese growth could continue its remarkable growth into the near future (the economy grew at 9.1% in 2009) – good news for Latin American exports, it would seem.

Third, the downside? There seem to be at least two serious issues here, perhaps more. First, with natural resources being the region’s “most dynamic exports over the past decade” Latin America has experienced what ECLA calls a “recommodification” of its regional export structure. ECLA:

“After falling from some 52% of total exports in the early 1980s to a low of 26.7% in the late 1990s, the share of raw materials has risen over the past decade to reach almost 40% of the total in the last two-year period (2008-2009) (see figure 7). This increase in the share of raw materials has taken place at the expense of medium-, high- and low technology manufacturing exports, all of which have grown by much less than in the 1990s. This is consistent with the reduced dynamism of engineering- and labour-intensive manufacturing exports.”

In ECLA speak: the “quality” of the region’s international trade has not improved over the last decade. And interestingly where manufactured or other “value added” goods have accounted for a larger share of exports (Mexico, for example), Chinese competition in their principal export market, the US, has been difficult to overcome.

The second downside to this all, according to ECLA, is the threat of 21st century dependency. Again here’s what the commission sees, potentially looming on the horizon, with shades of the 1960s:

“One major challenge is to prevent the growing trade between the two regions from reproducing and entrenching a centre-periphery trade pattern in which Asia (particularly China) emerges as a new centre and the countries of the Latin American and Caribbean region as a new periphery.”

Finally, any rays of hope? Yes, in fact, there still are a handful of bright spots which make the Latin America of today distinct from, say, the 1950s and 60s, when dependency debates were all the rage. One, the reliance on primary good exportation could be eased by the continuing growth of intraregional trade and financing. Decisions by MERCOSUR to improve its customs union and the potential of the Bank of the South are seen as hopeful recent measures by ECLA. Two, the continuing growth of South-South trade and integration has provided important market diversification and alternative financing. And three, there is the hope that the region’s governments will now place increased priority on public policies that “promote higher levels of innovation and endogenous development of technological capabilities.”

Staying with a few other economy notes:

• There are some signs that one of the Latin American economies which has struggled most of late, Venezuela, may have turned the corner in coming out of a recession which officially began in early 2009. CEPR has the details in a new report which maintains that the “Venezuelan economy grew by an estimated 5.2 percent in the second quarter of 2010, on an annualized basis.” According to the briefing’s summary, “although there are a number of analysts who are predicting that the Venezuelan economy is on the verge of inevitable (and long-anticipated) ruin, there is nothing in the recent data – or that of the last decade – to indicate that this is true.” To the contrary, “if the Venezuelan government maintains adequate levels of aggregate demand – including a commitment to strong counter-cyclical policies as necessary – the Venezuelan economy will grow, and the progress in employment, living standards, poverty reduction, and income equality that were seen during the previous expansion will continue.” For more on the case that economic recovery is beginning, see the Chavez-leaning venezuelanalysis.
• The Committee to Protect Journalists says that growing attacks on the Mexican press represent a “national crisis.” (Eight of the twenty-two journalists killed under the Calderon government’s watch have been murdered “in reprisal for their work.”) The committee calls on the Mexican federal government to take over the investigations of such murders at both the state and local level.
• Meanwhile, in Honduras, Reporters without Borders documents ongoing harassment and censorship of media outlets, particularly radio stations, critical of the Honduran government and the June 2009 coup d’etat. Reporters without Borders:

“These latest violations of the right to report news and information show that the post-coup political status quo continues to have a disastrous impact on media freedom… With nine journalists killed since the start of the year, Honduras continues to share joint status with Mexico as the western hemisphere’s two most dangerous countries for the news media.”

• More from Honduras, the site of mass murder Tuesday when gunmen entered a shoe factory in San Pedro Sula and killed 18 employees. According to the city’s assistant police commissioner, the murder could be linked to drug trafficking organizations. “Apparently the massacre was carried out as part of a turf battle between small-scale drug gangs, given that that neighbourhood has conflicts because of the presence of gang members,” the official said late Tuesday. The Americas Program has more with a piece that looks at the growing incursion of Mexican trafficking organizations in Honduras.
• And Honduras Culture and Politics has the details of a (re)new(ed) debate over the minimum wage in the country.
• In Venezuela, the recent death of hunger striker Franklin Brito has drawn attention to another group of Venezuelans protesting with the same tactics. This time it’s Venezuelan prisoners who are protesting squalid and frequently subhuman living conditions in their country’s penitentiaries. By way of the Economist: “According to the Venezuelan Prisons Observatory (OPV), an advocacy group, more than 43,000 prisoners are crammed into jails built for 15,000. Four-fifths of them have not even been sentenced.”
• A feature in Colombia’s Semana last week looks at Juan Manuel Santos’s ambitious plans for land reform, an initiative which some are heralding as “revolutionary,” should it be carried out successfully. In a country which has seen its internally displaced population triple in the last six years – from 1 million in 2004 to an eye-popping 4 million plus today, it’s not difficult to see why.
• And in Nicaragua, debating poverty. An independent study recently conducted by International Foundation for the Global Economic Challenge has confirmed that extreme poverty has fallen by 7.5 percentage points over the last five years (from 17.5% in 2005 to 9.7% today). President Daniel Ortega says the social programs implemented under his government deserve much of the credit. His fierce opposition, however, is asking, at what cost? They cite “environmental degradation caused by expansion of the agricultural frontier, and allegations that social programs are being financed by Venezuelan funds on a discretional basis and without transparent accountability,” as concerns. IPS and Nica Times with the story.
• Finally, two opinions on Mexico and the drug wars. The LA Times runs an editorial on the arrest of “La Barbie” today, arguing there is still much work to be done in the struggle with cartels. And in the Washington Post over the weekend, Jorge Castaneda and Héctor Aguilar Camín say California’s Prop. 19, proposing the legalization of pot in the state, could offer Mexico an exit, by way of precedent, from its bloody drug wars. Here’s the case:

“If our neighbors to the north pass Proposition 19, our government will have two new options: to proceed unilaterally with legalization -- with California but without Washington -- or to hold off, while exploiting California's move to more actively lobby the U.S. government for wider changes in drug policy. Either way, the initiative's passage will enhance Calderón's moral authority in pressing President Obama.”