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OPINION AND ANALYSIS | 23-11-2019 09:50

The myth of Latin American prosperity

Today, our continent faces the impossible task of becoming competitive on a global scale with an absolute lack of infrastructure, limited credit, cramped capital investment for decades, and galloping inequality.

Interestingly enough, Argentina appeared to be falling off a precipice that was more a self-inflicted wound than a consequence of broader socio-historic tendencies. Such was Argentina’s fate that, in the early years of Mauricio Macri’s Presidency, the country was seen as the frontrunner in overturning more than a decade of leftist populism in the region, much to the acclaim of the hegemonic Western powers. As quickly as Macri’s and Argentina’s star lit up, it fell to the lowest of the low, and Argentina once again became the laughing-stock of the world, on the verge of a new sovereign debt default at the hands of the International Monetary Fund.

Alas, as Latin America unexpectedly went up in flames in a matter of weeks, the nation that will soon be presided by the tandem Alberto Fernández-Cristina Fernández de Kirchner is glowing bright again, one of the only countries in the region not in imminent risk of social eruption. The US State Department has made it clear that despite Fernández’s characterisations of the global superpower as an old school supporter of military coups in Third World countries, it considers Argentina a “strategic” democratic ally in the region with which it very much wants to engage. With the IMF indicating it is willing to play ball, some economists are even postulating that under certain conditions, including an auspicious renegotiation of Argentina’s large sovereign debt pile with the IMF and private creditors that mainly congregate in Wall Street, the third-largest economy in Latin Amercia could quickly thrive on the back of a “social pact” which seems to defy the laws of gravity. Or at least, economics.

Yet, what Argentina faces is much more profound than facing its own internal demons. Alberto, one such minor demon, and Cristina, a queen demon of sorts, had already run the show during more auspicious times, showing that it is possible to have a nation grow macro-economically in this godforsaken land, rich with natural resources and educated workers. Macri, a different but equally dangerous type of demon, did manage to generate hope, and even economic growth, through a plan that could have worked but ended up imploding catastrophically. Together, and with the expectations that the renewed pan-Peronist front generates among pundits, at least in Argentina, they demonstrate that it is not a matter of right or left, Macrista or Peronista, but that deeper forces are at work.

Without looking to go into an ontological analysis of Latin American political economy, it is important to put the recent flare-up into context. The 2000s saw a consolidation of power in a group of democratically elected leftist populists across the continent, leaders who espoused a distrust, and even hatred, of the United States, which they blamed for the spread of a wicked form of capitalism — dubbed neoliberalism — that exacerbated income inequality. These leaders — many of whom participated in failed coups in the past, others who had been jailed by vicious military dictatorships backed by the US during the Cold War, and some that simply sat on the sidelines of national politics until it was their time — helped raise millions of Latin Americans out of poverty through the implementation of progressive economic policies including the distribution of social plans and subsidies, particularly of transport costs. The strong economic growth of several major South American countries in the 2000s, such as Argentina and Brazil, both of which had suffered tremendous economic crises and devaluations toward the end of the 20th century, was fuelled by a commodities super-cycle sparked by China and South-East Asia, with ferocious appetite for raw materials.

The Kirchners and Lulas of the continent focused on instant gratification, using the billions of dollars reaped from agricultural exports, mining duties and other commodities-based exploitation to further their own political agendas, allowing for the generation of bloated bureaucracies, mass corruption, and large fiscal deficits. Eventually, cracks in the populist economic model, along with intolerance against dissidence and a hatred of the free press by these presidents who sought to perpetuate themselves in power, pushed the population to the other side of the spectrum. Pro-market candidates campaigning on deficit correction, global integration, and a respect for institutions took the continent, yet the global dynamics had changed. China’s growth had already begun to slow down — a process which continues, as its middle and upper classes evolve — while the global financial crisis of 2008 helped cement the financialisation of the global economy, with extreme easy money policies in the United States and the European Union causing powerful capital flow disruptions across emerging market economies as investors “chase yield.”

The decadence of Western capitalism has begun to express itself ever more clearly since the 2008 crisis, with the thwarting of social mobility and the consolidation of powerful global elites consisting of ultra-high net worth individuals and companies. On the sidelines remain the majority of the world, particularly in poor regions such as Latin America. Today, our continent faces the impossible task of becoming competitive on a global scale with an absolute lack of infrastructure, limited credit, cramped capital investment for decades, and galloping inequality that has given birth to a generation of young people stuck in the poverty trap, living on the outskirts of our major urban centres. Inept bureaucracies, corruption, and retrograde economic schemes incentivise the dollarisation of portfolios before productive investment.

As Jaime Durán Barba explained in a recent column for Perfil, smartphones and social networks have given the coup de grace to traditional political analysis, based on 20th-century categories. Today’s social protests have no real leaders, no concrete demands, and no easy mechanisms for deactivation. They are the expression of diverse groups of people, united by the incapacity of their nations, and region as a whole, to truly improve their lot. With Chile and Bolivia in flames, Ecuador already having exploded, Venezuela in a humanitarian crisis that competes with Syria, the rest of the region is scared. Colombia is beginning to shake, and some question whether Jair Bolsonaro can conduct Brazil through these turbulent seas.

It is in that context that Alberto Fernández is proposing a series of measures that sound completely antiquated to solve one of the world’s biggest economic enigmas, sustained growth in Argentina. A social pact aimed at stimulating demand, printing pesos and raising pension payments and the minimum wage, while taxing the rich and the agroexporting sector, appears to be his magic sauce. This, in the context of capital controls and a massive pile of debt that needs to be renegotiated. Fortunately, what matters in the immediate term is the sense of a plan — not that plan itself — as measured by its capacity to generate confidence. If, and only if he succeeds in this first step, will he have the opportunity to tackle the structural issues.

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Agustino Fontevecchia

Agustino Fontevecchia


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