Missing Out on a New Golden Age : Latin America: Its economy can grow at a stunning rate, but too often politicians can’t put a brake on a penchant for catastrophe.

As the voters of Brazil, Latin America’s largest country, prepare to elect a new president, one is struck by the deep pessimism widely prevalent in the country, as elsewhere on the continent, about the ability of politicians to brake the present headlong rush into economic catastrophe.

Most of Latin America is stuck in the deep rut of what too many people are saying is an unsolvable economic crisis--”worse than anything previously experienced in the 20th Century,” in the words of the Paris-based Development Centre.

Yet Latin America has shown the fastest economic growth of our era. According to a new study, “The World Economy in the 20th Century” by Angus Maddison, while world production rose 13-fold between 1900 and 1987, Latin America’s increased 32-fold. In terms of economic growth, Brazil (along with Taiwan) is the century’s champion.

Economics is a gloomy science, for sure, but it is the kind of gloom that is manic- depressive. One minute a country or even a continent is said by economists to be down and out, the next it is a stunning achiever. In the 1960s, the great work passed around every university economics class was Gunnar Myrdal’s “Asian Drama,” which argued that the economic prospects of Asia would continue as they had for the previous 50 years--downhill.

Now we acclaim the Asian “miracle.” Not only the dragons of Hong Kong, Singapore, Taiwan, South Korea and Thailand, some of which are nearly up to southern European levels of income, but also the great giants of India and China (until the latter’s recent political upheavals) have been surging ahead. Even if China only manages to maintain growth at a relatively modest 4% a year (compared with its recent 10%) it will overtake the United States as the largest economy in the world by 2010. With a national income of $6,000 billion, China would be entitled to have the biggest voice in the International Monetary Fund and the World Bank.

While it’s OK to be in a manic high about Asia, to be depressed about Latin America is not intellectually acceptable, even if emotionally, as in Brazil, there is good reason.

Take a look at the time of the Great Depression. In the early 1930s, after years of progress, Latin America seemed to be flat on its back. World trade had collapsed and with it access to capital markets. By the end of 1935 there was 100% delinquency of the dollar debt by Chile, Colombia, Peru and Mexico, 93% by Brazil and 24% by Argentina. Yet, in contrast to today, this delinquency provoked substantial balance-of-payments relief from abroad. Recovery was strong, and until the end of the 1970s, Latin American countries made the greatest progress in the growth of real per-capita income in the world. (For population worriers, one should add the footnote that during this period Latin America also had the fastest population growth.) Then came the comeuppance of the ‘80s. Latin America had borrowed massively from the banks right through the 1970s. It had also bucked the world trend of pushing for a nonprotectionist economy. When it was hit by the Western world’s greatest recession since the 1930s, with export markets collapsing and interest rates on debt shooting up from minus 9% to 16%, it keeled over.

Seven years later it is still down in the mud, mired in four main problems. First, debt: Despite the start made with Mexico and Costa Rica, the major Western banks are still handling foreign debt self-defeatingly conservatively, compared to the 1930s. Second is the fiscal crisis; only Chile and Colombia have come to terms with this. Third is inflation. Argentina, Brazil, Mexico and Peru have all hovered on the brink of hyper-inflation. All their desperate remedies, Mexico hopefully excepted, have failed. Fourth is the excessive reliance on subsidies, controls and state intervention.

Nevertheless, it is possible for cold-sober people to argue that Latin America could resume fast productivity growth. It is not easy for many to admit, but it is the military dictatorship of Augusto Pinochet in Chile that has the best record in recovery. Budget deficits, controls and nationalizations have been replaced by budget balancing, deregulation, privatization and low tariffs. The costs have been severe, pushing income levels back to where they were in 1973. But Chile again has an enviable rate of growth, around 10% a year. It has swapped one-quarter of its foreign debt for equity, mastered inflation, raised real wages, reduced both unemployment and its budget deficit and opened the economy to outside trade.

It also, according to a UNICEF report, did the best job in Latin America of protecting the well-being of the very poor during its budgetary squeeze. It successfully devised a subsidy strategy that provided basic health and nutrition to the most destitute mothers and children.

It is possible for Latin America to rediscover its golden age of achievement. It will be hard and it will be painful. But when countries insist on playing at politics, as Brazil is today, there’s nothing that the outside world can do but watch with dismay. To seriously consider electing as president a television game-show presenter is a sign of grave political immaturity. Even if that threat disappears in the campaign’s closing days, none of the other presidential hopefuls appears to have a real mastery of the complexity of politics and economics necessary to solve Brazil’s crisis. This election looks as if it will bury Brazil’s great economic potential for the best part of another decade.