Pricey oil erodes years of Latin gains

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Times Staff Writer

Are exploding oil prices about to burn Latin America?

With the largest petroleum reserves outside the Middle East, the region has been on a roll in recent years. Record exports of crude and grain fueled economic growth not seen since the 1970s. The region’s stock markets roared. Easier credit spawned a consumer class that snapped up homes and cars. About 26 million Latin Americans climbed out of poverty between 2002 and 2006, United Nations figures show.

But the same forces behind that prosperity are now, paradoxically, creating misery in the midst of bounty. Surging fuel prices have ignited inflation throughout the region, driving up the cost of food, whose prices were already on the upswing thanks in part to ravenous global demand for Latin America’s farm products.

A gallon of gas now costs more than a typical day’s wages in some countries in the region. Food prices have escalated an average of 15% over the last year, according to the U.N. Economic Commission for Latin America and the Caribbean. Prices of many staples have increased much more than that.


The inflation is leaching workers’ paychecks and eroding years of progress against hunger and indigence. At least 500,000 people in El Salvador and Guatemala toppled into poverty last year, the U.N.’s World Food Program estimates. Across Latin America, an additional 15 million people could join the region’s 190 million poor if prices keep rising at their recent pace, the commission predicts.

They aren’t alone. If gas and grocery prices continue their relentless climb, at least 100 million people worldwide may be sucked into the same downward spiral, the World Bank estimates. Food riots have erupted in countries such as Egypt, Cameroon and Burkina Faso. Poor consumers have staged demonstrations in India and Indonesia to protest cuts in fuel subsidies.

“There is a whole combination of factors that is putting a tremendous amount of pressure on the poor,” said Carlo Scaramella, who heads the World Food Program in El Salvador. “We haven’t had an economic shock of this magnitude in years.”

Maria and Jose Lopez, squatters who live with their three children in a two-room cinder block house perched on a hillside in this gritty Central American capital, are among those feeling the strain. This year, they scraped together $148.50 for a down payment on their own place in this hard-luck area, which is aptly named Thin City. But their dream of homeownership has long since vanished. The new priority is simply to eat.

Like most of the world’s low-income people, they spend the largest chunk of their wages on food. Basics, including eggs, rice and beans, have all jumped in price by more than 30% in the last few months, cutting deeply into the family’s $500 monthly income. Jose, a laborer, pawned his wedding ring to buy groceries after a short bout of unemployment. Maria, who works weekdays in the central market downtown, got a loan from her employer.

She recently took a weekend job as a domestic and pulled her two oldest children -- 14-year-old Laura and 10-year-old Kimberly -- out of Catholic school. Only 7-year-old Bryan is attending classes. The family can no longer afford the $17 a month in tuition for each girl on top of its debts, child care and ballooning food bills.


“I’m frightened,” said Maria, 32, displaying the near-empty larder. “I’m working seven days a week, and it’s still not enough.”

Though exporting nations such as Mexico, Brazil and Chile have profited handsomely from their petroleum, soybeans and copper, Central America has reaped few benefits from the commodities boom. The region imports much of its grain and virtually all of its oil.

Pain at the pump is severe. Drivers in San Salvador pay about $4.76 a gallon, up more than 25% over the last year. The price of diesel, the most heavily used vehicle fuel in the country, has jumped about 75% over the same period, to about $5.13.

The capital’s bus drivers recently raised fares by a dime on some routes, a 40% increase that has hit consumers hard. Rising fuel costs have rippled through the supply chain, boosting the price of virtually everything.

It cost Pablo Alexander Reynosa his job. Until recently, the 29-year-old father of four worked for a large car dealership in San Salvador cleaning and prepping vehicles. He said high fuel prices have been a blow to sales, leading his boss to fire him and several other employees in May.

Reynosa has yet to find another position. His savings are about gone. He said he’s contemplating returning to Van Nuys, where he once worked as a carpenter and gas station attendant. News of the U.S. economic slump and crackdowns on illegal immigrants doesn’t scare him.


“Things may be bad there, but they’re worse here,” he said.

In fact, a slowing U.S. economy has retarded growth of remittances, which are crucial to the Central American economy. A weak U.S. dollar means the money sent home from the States buys less than it used to. Many in El Salvador, which embraced the greenback as its official currency in 2001, are longing for their old currency, the colon.

Wiping fresh dough from her fingers behind the plastic and tin shack she shares with 10 family members in San Salvador, tortilla vendor Consuelo Esperanza Acensio said the price of the imported cooking oil she uses had jumped 50% in the last few months. Corn and firewood prices have surged too. She said she can’t recall a bout of inflation this swift and steep in all of her 44 years, even during civil war in the 1980s.

“We had it easier during the war,” she said. “At least the colon would buy something.”

In an attempt to fight inflation, central banks in Chile, Brazil and Mexico have raised interest rates. But that’s threatening to slow the solid growth that has produced jobs and wealth.

Public frustration is growing. In Brazil, police in the city of Porto Alegre recently fired rubber bullets and tear gas into a crowd that was trying to storm a supermarket to protest high food prices.

Transport workers paralyzed Nicaragua in May, demanding affordable diesel. Most of Nicaragua’s electricity comes from plants that burn imported oil. Regulators have raised rates five times since November.

Fearful of social unrest, Latin American leaders are now scrambling to blunt the impact of the price shocks. Mexico, for example, has eliminated duties on imported grain and is increasing cash payments to families enrolled in the nation’s largest anti-poverty program.


It’s also keeping a lid on the price of gas, which is about $2.68 a gallon in most of the country. That subsidy is projected to cost the treasury more than $20 billion this year, a figure officials say is unsustainable if crude prices continue to rise.

Central American leaders have huddled in summits, vowing to decrease their dependence on imported grain and livestock. It won’t be quick or easy. To revitalize their farm sectors, these governments will need to invest billions in roads and other infrastructure. Farmers need loans for equipment, fuel and supplies such as fertilizer, which are much costlier than they were a few years ago.

Fallout from the crisis could last generations. Even short periods of malnutrition can permanently stunt the brain development of children. Kids pulled out of school to help with the family finances often remain permanently behind their peers. Neither Maria nor Jose Lopez finished high school. They can’t say when they’ll send their daughters back.

Irma Concepcion Fernandez, principal of the Catholic school the girls used to attend, said other hard-pressed families have pulled their kids out as well. Some of those who remain, such as Bryan, are sluggish from lack of calories. His breakfast on a recent morning was a glass of water and a tortilla, mashed with a bit of cheese.

His mother recalled the days when the family ate eggs, corn flakes and syrupy pancakes for breakfast. Her tone was warm and melancholy, as if speaking of departed loved ones. She said her religious faith keeps her going -- along with the free breakfast and lunch at her weekend job ironing clothes for a wealthy family.

“They give me three tortillas” with each meal, she said. “Can you imagine that?”



Times staff writer Alex Renderos contributed to this report.


About this series

This is the third in a series of occasional stories looking at how skyrocketing oil prices are transforming lives in Southern California and around the world.