Latin American economies
Thanks to Andrés Velasco for this article, which in many ways sums up what I've been arguing fairly regularly for over six months regarding the irrational exuberance about Latin American economic growth. But a respected former Finance Minister of Chile may hope to have some more impact.
But today’s situation shares two features with the earlier episodes of financial euphoria over Latin America: sky-high commodity prices and cheap international money. In fact, for many of the region’s countries, the terms of trade are higher and the relevant global interest rates lower than they have ever been. These factors, more than any virtuous policy change in recent years, are propelling growth.
True.
The problem is that governments in the region have yet to realize that countercyclical fiscal policy implies rowing against the current in both parts of the cycle: spending more when times are bad (the easy part) and spending less when times are good (the true test of virtue). Today, fiscal policy remains too expansionary in virtually every Latin American country.
That fiscal impulse, coupled with high commodity prices and abundant credit, continues to fuel economic growth today – often at the expense of stability and growth tomorrow. Latin America’s time has finally come, too many pundits will keep saying. If only they were right.
On this, I agree to a point, though I think he is pointing primarily to places like Venezuela with a high level of clientelism. You can still spend in good times as long as you are spending on the right things, particularly in terms of encouraging movement away from dependence on commodities.
The key takeaway point, though, is that excitement over GDP growth, leading to talk about how some Latin American economies should be viewed as "models," is short-sighted because it consciously ignores serious underlying weaknesses.
2 comments:
The Cancer of Latin America :
There is a sickness produced by being praised, by too much commendation for, or admiration.
Too much approval, panegyrics and eulogy pushes people off a cliff.
In the article "Latin America’s glossed decade" by Andrés Velasco ( former Minister of Finance of Chile ) in CNN World we read this :
"The Inter-American Development Bank declared last July that this would be “Latin America’s Decade.” A couple of months later, The Economist endorsed that idea, which has since been repeated by countless apologists and experts"
The trutch is that Latin American will go nowhere without Political Reforms for Democracy, Free Expression, Freedom of the Press, Separation and Independence of Powers ( specially the Judicial Branch of Government ), reforms to crush the general corruption.
Some countries like Venezuela, Ecuador, Nicaragua and Bolivia run counter to these recommendations for Democracy, Freedom and against corruption.
The Fiscalías or District Attorneys are a shame in many countries in Latin America including the "good" ones ( those with moderation and rationality ) .... They are a shame of inefficiency, incompetency and lack of access to justice for the common man.
These bureaucrats sleep and snore in total laziness, negligence, failure to act, total cowardice and corruption.
Not only the District Attorneys, but the Procuradurías that should control the corruption of civil servants are also inefficient, lazy, coward and corrupt.
Francis Fukuyama said in his books that TRUST with capitals is necessary for Economic Development and the economic take off of a capitalist modern society.
That is what I still can't see in Latin America, TRUST and CONFIDENCE .... There is no Firm reliance on the integrity, ability, or character of these institutions of Justice. And the Political Systems are very clientelistic and corrupt throughout Latin America.
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On this, I agree to a point, though I think he is pointing primarily to places like Venezuela with a high level of clientelism.
Care to explain how Venezuela is somehow now considered the poster child of clientelism now in Latin America? The previous two-aprty system in Venezuela was certainly characterized by high levels of clientelism, but I haven't seen any serious reseach on how Chavez made things worse. In fact, I've read World Bank reports showing that social funds have been distributed to the poor completely free from voting patterns or opposition control of states/localities.
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