Despite all the Marquezian dramas of civil and class war, colonialism and corruption that have plagued Latin America, history shows that its economic destiny rises and falls with only one thing: the prices of oil, iron ore, copper Y other raw materials.
Now, despite a recent drop, commodity prices have risen sharply since the beginning of last year, but Latin American economies have not. They are expected to contract 1 percent this quarter while the world economy expands 5 percent. If you plot the prices of raw materials against the GDP growth Latin American, the lines that moved together for decades were suddenly separated. Why? The pandemic and populism.
Seven of the 10 highest death rates from covid-19 in the world are found in Latin America. The toll is fueling support for anti-establishment politicians in an unusually crowded campaign period, with 11 countries in the region holding elections this year. Brazil and Colombia remain in 2022. In many cases, the right was in power when the pandemic struck, so growing discontent is benefiting candidates from the left or far left.
A Marxist-Leninist is about to become the next president of Peru. A communist is among the favorites to replace center-right politician Sebastián Piñera in Chile. Violent protests against the Colombian government improve the prospects for its left-wing rivals. In Brazil, the stance of right-wing populist Jair Bolsonaro helps his radical alter ego, former President Luiz Inácio Lula da Silva, establish an advantage in the polls.
Fear of what comes next is holding back investment at a vulnerable time. The 2010s were lost. Growth was undermined by falling commodity prices, which account for more than half of exports in most economies in the region. Foreign investors began to turn away from Latin American stocks and bonds when commodity prices plummeted and have yet to return. Pessimism envelops the continent.
In the long run, commodity prices don’t rise faster than inflation, and that left resource-dependent Latin America essentially unable to move. My research shows that Brazil, Chile, Mexico, and Colombia are not richer in per capita income, relative to the US, than they were in 1850 (when comparative records begin). Argentina, Peru and Uruguay are much poorer. The Argentine median income is now 33 percent of the US median income, down from 55 percent in 1850.
However, in the decades when commodity prices soared, so did Latin America. When prices rose in the 1970s and 2000s, so did the pace of growth and the number of economies growing so fast that they saw their median incomes converge with those of the United States. In the decades when commodity prices stumbled, so did Latin America, most recently in the 2010s.
However, given the cyclical nature of commodity prices, a bad decade often heralded a better one to come. In the 2010s, low prices discouraged investment in oil fields, mines, and other commodity productions around the world. Supply is tight, inventories are low. As the global economy recovers, demand is increasing for raw materials of all kinds, particularly those needed for electric cars and greener homes and buildings.
Recent swings aside, commodities appear to be entering a new “supercycle” of rising prices. The countries of the region, as the main exporters of soybeans, green metals and other raw materials, should benefit more than most. Only Peru and Chile supply 40 percent of the world’s copper.
The hope for the region is that the commodity boom will be strong and prolonged enough to overcome doubts about the new wave of populists. Financial crises have a way of moderating the behavior of even the most committed radicals.
Lula took office after the crisis of the 1990s and surprised many by concentrating, at least in his early years, on keeping inflation under control and controlling his spending impulses. In Mexico, the president Andrés Manuel López Obrador It confirmed investors’ fears in many ways, save for one criticism: budget discipline. Its refusal to spend heavily on pandemic relief alarmed some, but left Mexico less in debt than many other emerging nations.
The current generation of socialists and communists may be less successful at the polls or less radical in office than feared. If the political dramas recede, Latin America she will be free to be herself; a region of commodity-dependent economies, which will rise with world prices, as long as the upward trend lasts. _
* The writer, director of global strategy at Morgan Stanley Investment Management, is the author of The Ten Rules of Successful Nations
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