Momentum Lags in Nations to the South

It is hard to be upbeat about Latin America at the century’s turn. Although only recently many observers were touting the region’s free-market economic reforms and its march toward political democracy, today one must take into account the lackluster performance of Latin American economies through the 1990s, the regression toward authoritarianism and the limits on both unfettered markets and democratic governance.

The past year was particularly bleak. Taken as a whole, Latin America and the Caribbean registered no economic growth for 1999, equivalent to a 1.5% reduction in income per person. Of the major Latin American economies, only Mexico--closely linked to the United States and benefiting from the U.S. boom as well as from the North American Free Trade Agreement--had growth in 1999 above 3%, and the few other and smaller economies that did well were also closely integrated with the United States. South America’s economies are lagging, as East Asia recovers, Europe begins to gain momentum and the U.S. churns ahead.

Disappointment about Latin America’s economic performance has been reinforced by disenchantment with the region’s political state: pervasive corruption, violence and impunity; the repudiation of established authorities, parties and institutions; the rise in some countries of populist leaders elected democratically but governing as authoritarians; a gathering sense of gridlock and frustration in other nations; and, in the case of Colombia, growing insurgencies.

The disconcerting gap between yesterday’s rosy projections and today’s gloomy appraisals derives primarily from three sources: unrealistic expectations, exogenous pressures beyond Latin America’s control and the failure to disaggregate a vast region with internal distinctions as great as those within Europe and Asia.

Latin America’s moves during the 1980s and ‘90s toward free-market economics and further integration into the world economy were indeed important paradigm shifts. Too many commentators, however, exaggerated the likely immediate effects and downplayed the problems that remain, some of them byproducts of the reforms themselves. Inefficient state monopolies have been privatized, but the oligopolies that replaced them are not always much better. The immediate impact of some reforms has been to worsen the inequality of wealth, not to provide a credible premise of broad prosperity. Stronger international orientation has made Latin America’s economies more competitive but also more vulnerable to external forces. The needed “second generation” of institutional and political reforms--strengthening the judiciary, professionalizing independent regulatory agencies and modernizing education--has been hard to undertake.

The regional turn toward democracy has also been oversold. The goal of constitutional democracy has been widely accepted, but dissatisfaction has grown with virtually all democratic political institutions, especially in countries where the narcotics trade and other lucrative criminal enterprises flourish, or where guerrilla violence challenges state authority.

The hard truth is that constitutional democracy is not yet being consolidated in most of Latin America--in some cases because it has yet to be constructed, in others because democratic governance has failed badly.

Latin America’s hoped-for progress has also been slowed by external forces. The Asian and Russian financial crises of 1997-98 had disastrous consequences for much of the region: contagious skittishness about emerging market investments; pressures to sell Latin American securities to cover losses elsewhere; shrinking markets for exports to Asia; and declining commodity prices for products ranging from copper and petroleum to bananas and soy beans. Latin America has also been buffeted by horrific weather and other natural disasters, and it has been hurt by the failure of the U.S. government to deliver on its vision of hemispheric free trade.

A third reason for disappointment comes from the tendency to tar all of Latin America with problems that affect only a few countries. The nations of Latin America and the Caribbean always have varied a lot, and this divergence has been increasing, not narrowing, along three important dimensions: the degree of economic and demographic interdependence with the United States, the extent to which countries have committed themselves to international economic competition, and the strength of the state, especially in relation to organized crime and guerrilla violence. Because of these major differences, business and public policy decisions must be much more specifically calibrated than familiar discussions of “Latin America” permit.

International recognition of Latin America’s extraordinary diversity would itself improve the region’s chances for progress. So would a sharper and more committed focus within Latin America on the profound challenges all these countries face, despite their differences: reducing inequities, strengthening governance and accountability, and modernizing education. Only when these tough problems are effectively confronted can Latin America resume its forward momentum.