Latin America: An economic recovery in sight

| December 18, 2017 | 0 Comments
Latin America currently exports mainly natural resources and people. Mexicans, such as those pictured here, sent home remittances of $42 billion in 2016. U.S. President Donald Trump is determined to reduce the number of Mexicans illiegally entering the U.S. (Photo: z2amiller)

Latin America currently exports mainly natural resources and people. Mexicans, such as those pictured here, sent home remittances of $42 billion in 2016. U.S. President Donald Trump is determined to reduce the number of Mexicans illiegally entering the U.S. (Photo: z2amiller)

Latin America will enter 2018 on the path to economic recovery from a long recession after the end of the commodities boom of the early 2000s. The region is still smarting under pressures brought to bear by U.S. President Donald Trump on undocumented migrants and especially on Mexico, thanks to his stated aim to renegotiate or cancel NAFTA.
While the regional economic recovery will have a more significant impact in South America, Trump’s policies will negatively influence Central America and Mexico most markedly. In the elections scheduled for late 2017 — Chile’s, which concluded after press time, and Colombia’s, which take place in May — the possible election of right-wing governments might continue the trend of replacing left-of-centre ones across the region. However, Mexico or Brazil are more likely to buck that trend. Possible wins for leftist candidates, such as Andrés Manuel López Obrador in Mexico or, Lula da Silva in Brazil, could partially rebalance the politics of the region. Venezuela, in its terrifying slide towards authoritarianism and economic collapse, will probably re-elect Nicolas Maduro in fraudulent elections, while the Cuban regime will complete its post-Castro leadership transition without any possibility of democratization.
Ongoing regional challenges, such as violence related to drug trafficking and extreme income inequality, will remain and will tax the possibilities for sustained economic and democratic development. Latin America’s 650 million inhabitants, a mere nine per cent of humanity, accounted for a third of all murders, kidnappings and violent robberies, according to the United Nations Agency for the Study of Violence and Public Security in 2016. The most afflicted countries, such as Honduras, Venezuela and El Salvador, have higher murder rates than countries such as Iraq or Afghanistan, which are immersed in massive political conflict. Underequipped and corrupt police forces and judicial systems are part of the problem, as is the production and trade of illicit drugs, giving rise to well-funded and organized criminal gangs. Much of this will continue in 2018.
Nonetheless, extreme inequality and lack of possibilities for decent work and social mobility remain the less immediate, but more powerful, drivers of public violence. In that regard, two opposite trends will grow in 2018. The first is increasing social protests and marked voting preferences for candidates with platforms focused on fighting corruption. Politicians promising to clean up corruption have done well between 2015 and 2017 in Argentina and Peru, for example, and are likely to do well in Colombia in 2018. The other trend is the continued political success of leaders promising militarization of internal security and an iron hand to prosecute violent crime, as demonstrated in the current presidential campaigns of Chile and Honduras. In both instances, more detailed coverage below provides further examples.
1. Migration
Latin America currently exports mainly natural resources and people. From the 40 million Latin Americans who have mainly migrated to the United States and Europe in the past few decades, the region received $120 billion in 2016 in the form of remittances. In Guatemala, El Salvador and Honduras, these migrants represent a full quarter of their working population and perhaps half of high school and university graduates. They send in remittances totalling as much as those countries receive from exports. In Mexico, the numbers are lower, but not insignificant — consider $42 billion received as remittances in 2016, for example.
For 2018, Trump’s policies to increase apprehension of undocumented migrants in the United States will continue, or intensify, given the context of mid-term elections there. More than 12 million undocumented individuals, including 9 million Mexicans and Central Americans, are his ultimate target. If he carries out these policies and builds a wall at the U.S. border with Mexico, flows will be further reduced, gradually closing an essential valve to release social pressures caused by the implementation of neoliberal policies in Mexico and Central America. Trump’s anti-immigration drive will therefore further destabilize the closed oligarchies running governments in Guatemala and Honduras, for example, and increase the likelihood that a populist anti-establishment leader is elected in Mexico.
2. Economy
Apart from exporting people, natural-resource commodities have constituted the lifeline for most Latin American economies. The fall in international prices between 2013 and 2016 caused a reduction in exports of up to 50 per cent in most South American countries, tilting almost all of them into recession and political upheaval. Meanwhile, oil-importing nations, such as those in Central America and the Caribbean, saw a drastic improvement in their trade balance and state finances as their energy bills fell. As well, 2017 has marked the beginning of a new trend, with mineral and agricultural prices rising again, while oil is doing the same, though much more slowly. That will contribute to economic growth in South America, notably for Argentina, Brazil and the Andean nations. In relation to that, China will continue to be a growing trade partner and investor for Latin America, while trade with, and investments from, the United States will suffer, given the fears about protectionist policies unleashed by the Trump administration on Mexico and the rest of Latin America.

 

Haitians gather at a flooded market after hurricanes ravaged Ouanaminthe in northeast Haiti in 2017. Climate change is an even more serious concern in Latin America. (Photo: Josiah Cherenfant, VOA Creole Service)

Haitians gather at a flooded market after hurricanes ravaged Ouanaminthe in northeast Haiti in 2017. Climate change is an even more serious concern in Latin America. (Photo: Josiah Cherenfant, VOA Creole Service)

3. Climate change
Latin Americans are, according to global opinion polls done by the Pew Research Center and Gallup, the most concerned about climate change and the most enthusiastic supporters of public policies to address it. This is not surprising, given the extensive damage suffered by the region’s farmers and coastal populations thanks to recent hurricanes and droughts. Partially in response to this, several governments have undertaken ambitious programs to switch their national energy supply to alternative sources. Costa Rica and Chile, two of the more developed (and oil-poor) countries in the region, have advanced the most in the 2010-17 period. However, Nicaragua, one of the least developed, has also managed to source more than a third of its electrical supply from alternative sources in 2017. For 2018, Argentina, Brazil and Mexico will start construction of global-scale solar and wind plants, using funding from China and the World Bank, as well as local private investments.
4. Argentina
Fresh from a victory in the 2017 mid-term elections, the right-wing administration of Mauricio Macri will persevere in its gradual movement to pro-market policies. Economic growth will continue, slowly undoing the rise in inflation, poverty and unemployment created by his initial policies, beginning in 2015. Argentina will still carry heavy fiscal and trade deficits, as well as currency overvaluation into 2018. Labour laws will be modified to reduce labour costs and taxes on most industries in 2018, while reforms to pensions and social transfers will proceed very slowly, seeking to reduce the fiscal deficit without triggering too many social protests. Nonetheless, given how socially regressive those reforms will be, strikes and labour unrest are likely. As the opposition remains fractured and more leaders of the former administration and labour movement are jailed or investigated for past instances of corruption, the ongoing struggles might give birth to a new generation of political and union leaders.
5. Brazil
The largest economy and country in the region begins 2018 with a major unknown — namely, what government shall be elected at the end of the year. The main candidates, so far, are João Doria, a neoliberal businessman who is now mayor of Sao Paulo city; Jair Bolsonaro, a far-right law-and-order candidate from Rio de Janeiro; and Lula da Silva, former president and candidate for the leftist Workers Party, now embattled by corruption allegations about many of the party’s leaders and even himself. While Lula now leads in the polls, Doria and Bolsonaro could still catch up with help from media conglomerates and Evangelical churches, sworn enemies of the progressive government agenda fostered by Lula and his designated successor, Dilma Rousseff, in the early 21st Century. Furthermore, Lula could still be disqualified as a candidate by the Supreme Court over his corruption charges. Whoever wins will face an impatient public, angered at massive political corruption, squeezed by fiscal austerity and economic crisis and tired of public insecurity. Thus, a tentative 2018 prediction is that Brazil will continue to endure instability if not growing political upheaval, which will slow down an already tepid economic recovery.
6. Chile
Chilean election results from late 2017 (after press time) might give Sebastian Piñera, a right-leaning former president, another victory. His return, if confirmed in the second round, would be a testimony to the staying appeal of a corrupt but able leader. If the centre-left candidate, Alejandro Guillier, unexpectedly wins, the reform policies attempted between 2014 and 2018 under Michelle Bachelet will be given a renewed and more radical mandate. Guillier’s victory could only come with the full support of the leftist voters of Beatriz Sanchez, a more impatient and demanding faction than the traditional supporters of previous progressive governments. The difficult paradox will reside in either a government led by a seasoned politician (and billionaire) such as Piñera, seeking to turn the clock back on reforms, or an inexperienced one such as Guillier with a weak coalition of his own, pushing them forward. For both, Chile in 2018 and onwards will thus look even more typically Latin American than before, with regular mass protests from students, indigenous peoples and other disaffected groups, while economic power remains in the hands of very few families, supported by media conglomerates and foreign capital. Watch for a growing violent insurgency by Mapuche Indigenous Peoples in the South, now expanding across the border into Argentina.

 

Former Brazilian president Lula da Silva now leads in the polls, despite corruption allegations. (Photo: UN photo)

Former Brazilian president Lula da Silva now leads in the polls, despite corruption allegations. (Photo: UN photo)

7. Colombia
After the long tenure of two-time president Juan Manuel Santos, this country will hold elections in 2018 in which new candidates might compete, including the former military leader of the FARC, a now-pacified guerrilla group. Having already signed a peace agreement, Colombia is trying to move ahead on issues such as corruption, agrarian reform and whether to extend the same conditions to another, smaller guerrilla group, the ELN. Still, strong opposition to the conditions attached to the internal peace deals lingers, and the right-wing, led by former president Álvaro Uribe, will attempt to gain power, thus pre-empting chances for Colombia to move on and underrtake the social and economic reforms required for lasting peace.
8. Cuba
President Raul Castro has announced he will retire in 2018 and a less gerontocratic generation will take over. Miguel Díaz-Canel, a hardliner with little confidence in the pro-market reforms done so far and much skepticism about former U.S. president Barack Obama’s reopening of relations with Cuba, is the likely successor. The bizarre sonic attacks allegedly suffered by American and Canadian diplomats in Havana in 2017 have cooled relations with the U.S., which will reduce tourism and remittances to Cuba in 2018 and onwards. Given new drastic limits on energy as Venezuelan subsidized oil is no longer coming in the same amounts, decreases in tourism and remittances portend a difficult year for regular Cubans. Combined with the transition to a younger, but harder-line, generation, the new Cuban government will give its armed forces further room to involves themselves in the parcelling out of the economy. It will become the dominant factor in joint ventures with foreign capital in agriculture as much as it has come to dominate tourism, medical services and energy.
9. Guatemala
Political instability and popular protests that began in 2016 will continue into 2018, with protesters demanding an end to government corruption and the impunity granted to the economic elite. The main confrontation is between the United Nations-supported CICIG (International Commission against Impunity in Guatemala) and the government of Guatemala because the former has accused the latter’s president, Jimmy Morales, of illegally funding his political campaign. Congress has so far defended him and lowered punishments for crimes of corruption, but popular protests in 2018 could eventually force an end to his impunity and that of most parliamentarians as well as the economic elites that fund and benefit from them. This monumental change of mood in a country once tightly controlled by a few families of oligarchs might spill over to Honduras and El Salvador, two neighbouring countries with similar problems of political corruption and impunity.
10. Mexico
Mexico will start 2018 as the Latin country with the most uncertainty, after Brazil. That is due, in large part, to its northern neighbour, which is bent on reducing its number of undocumented immigrants and getting more favourable conditions in a NAFTA renegotiation. Both will affect Mexicans greatly. Fewer will be able to move north to seek work, but it also means the growing number of Central Americans who go through Mexico en route to the U.S. will end up competing with locals for unskilled jobs in Mexico. NAFTA might not survive, as Trump might see more benefit in eschewing the agreement in an election year, clearing his way to more arbitrary, but spectacular trade measures. Domestic Mexican politics will culminate in presidential elections, in which a series of independent candidates and a leftist populist, Andrés Manuel López Obrador, will compete for the title. As in other parts of Latin America, Mexico’s traditional parties are under great pressure to survive, beset by corruption investigations and lack of credible policies and candidates. It’s likely two of its more established parties, one from the right, one from the left, will form an electoral alliance, chiefly to delay their own demise.

Pablo Heidrich is an assistant professor of political economy and international development at Carleton University and was formerly a senior researcher at The North-South Institute in Ottawa.

Be Sociable, Share!

Tags: ,

Category: Dispatches

About the Author ()

Pablo Heidrich is an assistant professor of political economy and international development at Carleton University and was formerly a senior researcher at The North-South Institute in Ottawa.

Leave a Reply

Your email address will not be published. Required fields are marked *