Ending ‘decade of neglect’ in U.S.-Latin America relations

Latin America began 2008 riding a commodities boom, and there were expectations that first-world status was in sight for at least some countries. Better times down south fueled demand for U.S. goods and services and lessened the flow of illegal immigration. An increasingly prosperous Brazil even broke into the ranks of the top 10 U.S. trading partners.

But as the region heads into the new year amid a global economic downturn, the future is cloudy. The United Nations recently forecast that economic growth in the region will slide to 1.9% in 2009, down from 4.6% this year.

We asked Sebastian Edwards, a professor at the UCLA Anderson School of Management and former chief Latin American economist at the World Bank, what’s ahead for Latin America in 2009, how relations with the U.S. might change under the incoming Obama administration, and for his assessment of social gains in the hemisphere.

Edwards, 55, got his doctorate in economics at the University of Chicago, but says he is not “one of the Chicago boys,” referring to the conservative market-driven orthodoxy of Milton Friedman. He is the author of 12 books, including a suspense novel that was a bestseller this year in his native Chile. Among his 200 scholarly papers is a study of the vagaries of the art market.


In a conversation this week, Edwards discussed the region’s missed opportunity to invest in human capital and the fallacy of those who thought the region had “de-coupled” from the economies of U.S. and Europe. He urged President-elect Barack Obama to “end a decade of neglect” in U.S.-Latin America foreign relations and to make overtures to Cuba and Venezuela.

Has this been a good decade for Latin America?

It started horribly and then improved. It was good after the commodities boom began in 2003 until it ended a few months ago. As with past booms, people thought it would last forever. I gave a speech in Chile in July at which the speaker before me predicted oil would end the year at $250 a barrel. The notion that prices would stay high and prosperity remain unstoppable was silly. What people didn’t understand was that this boom in copper, oil, soy and the rest was a short-term illusion, one as fragile and transitory as the housing bubble.

But the region saw significant social and economic gains. Poverty declined from 44% to 32%. Millions of jobs were created.

These commodity booms are recurrent cycles. What is different and encouraging this time is that most governments saved the proceeds, didn’t throw big spending parties and piled up their foreign reserves. For that reason, the impact of the global financial crisis will be less severe.

When a crisis hits, two things happen in Latin America. Trade collapses, exports take a beating and what countries do sell commands lower prices. So there is less foreign exchange coming in. Also, there is inevitably a change in attitude, in that foreign investors become more risk-averse and buy less Latin stocks and bonds. So less capital comes in. High levels of foreign currency reserves help a country withstand that double squeeze.

But to say that poverty declined and jobs grew when you averaged 4.5% growth over several years is saying the obvious. Yes, there have been social improvements, but not as fast as they should have been nor as targeted as they could have been.

What should Latin American nations have done?

Investments in education, innovation, science and research were not made. Two very objective measurements -- the TIMSS and PISA standardized tests administered globally to eighth-grade students -- show the Latin American quality of education is dismal, among the worst in the world. Results show all Latin countries well below the world average and most in the bottom 10%. So it’s a disaster, and nothing’s been done about it. In part, improvements didn’t happen because people thought, well, it’s a boom, why go through with painful changes in the educational system, take on powerful teachers unions. We can wait.

Many leaders, including Brazilian President Luiz Inacio Lula da Silva, thought just weeks ago they were buffered from the U.S. and European financial crises. They ended up having to admit they were susceptible, announcing various stimulus measures. What happened?

This is the worst global crisis since the Great Depression and to think that Latin economies had “de-coupled” from the industrialized countries was wishful thinking. The story about Brazil, spread by leaders, analysts and journalists, was that it had become a world player in efficiency and productivity and that it was going to enter the global elite. I think that illusion was partly to blame for it and other countries stopping their efforts to modernize and do the reforms they had to do. There is a shortsightedness that is frightening.

Brazil reduced poverty partly by expanding Bolsa Familia, which pays all poor families a monthly stipend of $50. It’s improved the quality of life there.

One thing is to provide a safety net, which is a very positive thing, and another is taking the hard decisions to produce a more productive society. Education -- equipping children for a world of problem-solving and analytical thinking -- is at the core of greater productivity. Otherwise, children are destined to manual jobs, picking lemons or working in mines. Also, the business climate in Brazil is among the world’s worst. It takes something like 150 days to open a business, crime is out of control, and taxes are too onerous for those who pay them.

How are other countries doing?

Chile is way out ahead of other Latin countries by almost every indicator. Productivity growth is high, corruption is low, and it has set aside $50 billion in reserves as a contingency for the bad days. On the PISA test for eighth-graders, Chile finished tops in Latin America, but only 40th in the world. So it’s become complacent and instead of its top ranking in Latin America, it ought to be emulating other countries like New Zealand, Australia and Norway, countries that are commodities producers but that are at much higher levels of development.

Mexico is a mixed picture. The explosion of violence is very concerning, bad for the national soul and spirit and bad for business. [President Felipe] Calderon is trying to modernize aspects of the country. He’s not been very successful, but at least he’s trying. There are serious social problems, not helped by the fact oil revenue is declining and the taxation rate is too low. I expect an upsurge in illegal immigration from Mexico.

How about Venezuelan President Hugo Chavez? He claims success reducing poverty and illiteracy.

It took Chavez to show how incompetent the Venezuelan elite was. They didn’t understand how deep the social problems were. But the improvement of social indicators is less impressive than appears at first. It’s not clear that they are much better than if anyone else had been president during a time of extremely high oil prices. It’s like having a winning basketball team with players like Magic Johnson, Kareem Abdul-Jabbar and Bill Russell. You have to ask whether it was the coach or the players who made the team perform well. The problem with Chavez is that by discouraging investment and encouraging capital flight, he moved his regime away from sustainable prosperity. Instead, he goes after spectacular short-term, sound-bite improvements.

Any advice for President-elect Obama on improving hemispheric ties?

There is no doubt the United States has not been proactive in the last 10 years. Lula’s inauguration in 2002 summed it up. The Brazilians were expecting Bush to send the vice president or at least a Cabinet member. Instead he sent the U.S. trade representative, an official not of the political stature that was required at that moment.

Bush started his term saying Mexico and Latin America were going to be top priorities and then forgot all about that after Sept. 11. I believe he should have been able to walk and chew gum at the same time.

There has been hope that Obama will be different, but I don’t know. It’s unknown who will be on his Latin American team. Obama himself has never been there. There has been a long history of neglect and now there is a wonderful opportunity to forge lasting and better relations. So I am hopeful, but old enough not to get too hopeful.

Should Obama make special overtures to Cuba and Venezuela?

With Cuba for sure, relax the embargo, restrictions on travel and encourage scientific and educational exchange. Cuba is symbolic. It’s not that all Latins like Cuba, but they don’t understand the rationale for the embargo. It’s a symbol of U.S. stubbornness and not thinking a great deal about the region, because once you think about it, it’s obvious that lifting the embargo is going to accelerate democratic change as it did in Eastern Europe after the Soviet Union broke up. Once people live in a market economy, they demand change very quickly.

Chavez is more complicated. He is more unpredictable, and Obama should be careful. But Chavez became more radicalized after [the failed] 2002 coup attempt of which the U.S. seemed to be supportive. Letting Chavez know [that Obama] will respect democracies and condemn coup attempts around the world is a good idea. It doesn’t mean we are weak or giving into his bravado. It would mean that diplomacy is a good thing to do.