July 15, 2008
A test of Latin America’s new-found resilience
After four years of economic growth averaging 5% a year, Latin America faces a testing time in 2008. A downturn in the United States will hit Mexico, Central America and the Caribbean hard. South America’s prospects turn more on the growth of China’s economy, which has underpinned the prices of its commodity exports. Tighter credit means that investors will pay more attention to the policy differences that distinguish countries in the region. But investment and domestic consumption remain strong in many Latin American countries, inflation and public finances are more or less under control, and debt ratios are more manageable. So the region will have a chance to display its new-found economic resilience.
The influence of Mr Chávez’s radical brand of leftism will decline somewhat in 2008
None of the larger countries faces a national election and so the incentives for centrist governments to push forward with reforms will be greater: for all the progress of recent years, businesses in Latin America still battle against red tape, creaking infrastructure, and a poorly educated workforce. Some of this will take a generation to fix. But reforming government finances to boost public investment can be done more swiftly.
The radical populist governments in the region will find the going harder in 2008. Venezuela’s Hugo Chávez will begin the year with new constitutional powers and a new currency (the bolívar fuerte or “strong bolívar”, with three fewer zeros than its debauched predecessor). The constitutional changes will almost certainly include the abolition of presidential term limits and the advent of full presidential control over central-bank reserves and over new local-government bodies.
Unless the oil price falls steeply, Mr Chávez will once again defy those of his opponents who have repeatedly predicted a sharp slowdown in Venezuela’s economic growth. Oil-fuelled public spending combined with price controls will prevent the opposition gaining traction, whatever the long-term damage inflicted by the president’s “21st-century socialism”. Despite its name, the new currency is likely to be devalued at some point in 2008—and to be worth ever less on the black market. Even so, Mr Chávez will increasingly tighten his grip, tacitly encouraging opponents to leave by measures such as imposing a socialist curriculum on private schools.
South America’s leftward drift will see Fernándo Lugo, a former Roman Catholic bishop and supporter of liberation theology, elected president of Paraguay in April. That will end 60 years of uninterrupted rule by the Colorado Party, currently the world’s longest-ruling political party. But Mr Lugo will seek closer relations with Brazil’s social-democratic president, Luiz Inácio Lula da Silva, than with Mr Chávez.
Indeed, the influence of Mr Chávez’s brand of leftism will decline somewhat in 2008. Cristina Fernández de Kirchner, who succeeds her husband, Néstor, as Argentina’s president in December 2007, will face a difficult year: inflation risks getting out of control but reining in Argentina’s overheating economy will be unpopular. Bolivia’s socialist president, Evo Morales, will be more pragmatic in 2008, perhaps agreeing with Chile to develop his country’s natural gas for export. Ecuador’s president, Rafael Correa, who also fancies himself a 21st-century socialist, will find it hard to impose his will on a fractious country.
More quietly, Brazil, the region’s powerhouse, will continue its steady progress, with its economy growing by between 4% and 5%. In Mexico President Felipe Calderón will spend much of the year negotiating the liberalisation of the state-owned energy monopolies. If Mr Calderón succeeds—and he probably will—Mexico will have a reasonable chance of reversing the precipitous fall in its oil production. Peru’s President Alan García, having reinvented himself as a “neoliberal”, will seek to use his role as host of both the EU-Latin American summit in May and the APEC summit in November to boost his country’s trade links with Europe and Asia. In Colombia, President Álvaro Uribe will hope that 2008 turns out better than 2007, when scandals linking some supporters to right-wing paramilitaries helped stall a free-trade agreement with the United States. And in the Dominican Republic, Leonel Fernández seems set to win a third term in May. A moderate social democrat, he has twice presided over rapid economic growth, once in the mid-1990s and then again since 2004.
Municipal elections in Brazil and Chile in 2008 will also demonstrate that democracy has become uncontested in the region. Except, of course, in Cuba, where Raúl Castro will be hoping for a rapprochement with a Democratic president in Washington in 2009.
The bicententary of independence from Iberia will be a regional theme for the next 20 years. The celebrations will begin by marking the establishment of juntas in Caracas and Buenos Aires in 1808 after Napoleon toppled the Spanish monarchy. They were the forerunners of independent government in a region with a long, if often truncated, constitutional tradition. More than is often recognised, that is something to celebrate.
Michael Reid: Americas editor, The Economist; author of “Forgotten Continent: The Battle for Latin America’s Soul” (Yale)