Latin America faces another lost decade and resultant brain drain

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“This looks like a scene from the second world war, right here in the heart of Santiago.”

Felipe Alessandri, the mayor of one of Latin America’s most prosperous cities, was surveying the burnt-out wreckage of the 170-year-old church of Veracruz in the center of Chile’s capital, destroyed in a blaze started during a general strike last Tuesday.

The flames which consumed Veracruz are a vivid reminder that the violent protests which have gripped what was Latin America’s big economic success story are continuing unchecked, despite government promises of extra social spending, a fresh cabinet, and a new constitution.

Some Latin American leftists have applauded what they called a revolt of Chile’s masses against the failed economic policies of President Sebastián Piñera, a silver-haired conservative billionaire. But a popular uprising in neighboring Bolivia has led to the downfall of a politician from the other end of the political spectrum.

Evo Morales, the country’s first indigenous head of state, fled to Mexico after his 14-year presidency collapsed this week amid widespread fury against an election fraud, which triggered violent confrontations between his supporters and opponents.

Chile and Bolivia have sharply contrasting levels of wealth and political maturity but the turmoil which engulfed both of them fits a wider pattern in Latin America this year.

Mass protests have rocked governments in Ecuador, Haiti, Honduras, and Venezuela, the parliament was dissolved in Peru, a far-right president took office in Brazil, an anti-establishment candidate won the presidency in El Salvador and voters ejected the incumbent administration in Argentina.

“Latin America is up in arms, all the way from the southern cone to Mexico,” says Alberto Ramos, head of Latin American economics at Goldman Sachs in New York. “This pain is real and it has been brewing for several years.”

Ramos points to weak economies as the principal culprit: real growth in the gross domestic product has averaged just 0.8 percent over the past six years in the region.

“When you factor in population growth, that means per capita GDP actually declined,” he says.

The 1980s came to be known in Latin America as the “lost decade” after a debt crisis brought the regional economy to a standstill. For many countries, the current decade risks being a repeat experience.

The problems began with the end of the global commodities boom in 2014. The predominantly leftwing Latin American governments of the previous decade spent generously to reduce poverty and redistribute income but did not invest enough in areas such as infrastructure or education to make their economies competitive in tougher times. Growth stalled and tens of millions of citizens who had joined the middle classes in the good years saw their gains being eroded and prospects for the future dim.

The pain is only worsening. This year and next, Latin America is set to be the world’s slowest-growing region, according to the IMF, which predicts the growth of just 0.2 percent in 2019. Growth for sub-Saharan Africa this year is estimated at 3.2 percent.

Venezuela’s implosion under the socialist government of Nicolás Maduro is the most dramatic feature. More than 4.5m refugees have fled the once-wealthy oil-exporting nation after an economic collapse which has few peacetime parallels. But the performance of the region’s other economies has also been dismal.

The ferocity of Chile’s riots has alarmed observers who since the end of the Pinochet dictatorship in 1990 had viewed the country as an example to follow in an otherwise turbulent continent.

Piñera himself made the comparison in an interview with the Financial Times last month. “Look at Latin America,” he said. “Argentina and Paraguay are in a recession, Mexico, and Brazil in stagnation, Peru, and Ecuador in a deep political crisis and in this context Chile looks like an oasis because we have a stable democracy, the economy is growing, we are creating jobs, we are improving salaries and we are keeping macroeconomic balance.”

Ten days later riots engulfed the capital and Piñera declared a state of emergency, putting troops on the streets in a vain attempt to maintain law and order. Now the Chilean branch of Aid to the Church in Need, a charity recently concerned with persecuted Christians in Iraq or Syria, is turning its attention to problems nearer home: Veracruz was the sixth Chilean church to be sacked and burnt in the recent unrest.

Monica de Bolle, a senior fellow at the Peterson Institute for International Economics in Washington, says the best explanation for the chain of sudden social explosions in Latin America this year is the “tunnel theory” first coined by the Harvard economist Albert Hirschman in the 1970s to explain changing tolerance for economic inequality. It describes drivers stuck in traffic jams in adjacent lanes inside a tunnel.

“Suddenly the lane next to you starts to move but your lane doesn’t,” she says, paraphrasing Hirschman.

“There’s no direct gain for you but your expectations rise that your situation will improve. If it doesn’t, then the frustrated expectations generate a sense of anger and revolt.”

Latinobarómetro, a Chile-based NGO that analyses public opinion in the region, found last year that most Latin Americans viewed their economic future more darkly than at any time in the 23 years that the survey has run. The proportion who felt their country was making progress hit a historic low of just 20 percent, while 48 percent felt it was stagnating and 28 percent felt it was going backward.

Ironically, the two nations with the most positive sentiments about economic progress were Bolivia and Chile, where growth has been stronger than the regional average over the past few years.

Marta Lagos, the head of Latinobarómetro, says it is easy to get the impression that Latin America’s woes were purely economic. “But it goes much deeper than that,” she says.

“There are also problems of inequality, of political control and of corruption, which is fatal for democracy.”

Into this toxic mix comes the ability to spread discontent quickly and to organize protests easily and without cost through social networks. Latin America has one of the highest proportions of active social media users and WhatsApp groups are credited with the main role in the anti-establishment victories of figures such as hard-right leader Jair Bolsonaro in Brazil last year.

Amid this widespread disillusion, support for democracy in Latin America, a region long plagued by military coups, slid to 48 percent last year, its joint-lowest level ever.

Lagos notes that only one president of a major nation in the region, Mexico’s leftwing populist Andrés Manuel López Obrador, enjoys a popularity rating of more than 50 percent — and he has yet to complete a year in office.

De Bolle likens the Chilean protests, which were sparked by a small increase in metro fares, to the big demonstrations which swept Brazil in 2013. Those also began with a protest against an increase in public transport fares but quickly morphed into a wider, more violent movement against poor quality services. “There is no leadership, it is a spontaneous movement born out of frustrations so it is targeted at everything,” she says.

“It’s the idea that there is something wrong with the system but nobody knows exactly what it is.”

Nicholas Watson, Latin America head at the consultancy Teneo, believes that while protests in Bolivia, Ecuador and Chile were triggered by specific local issues, there were also common factors. “The most important is the existence of a deeper aquifer of frustration and discontent as gains made during the commodity boom have slowed or slipped backward,” he wrote in a recent note.

The outlook for the coming years is, if anything, worse. Despite the region’s generally mediocre economic performance, in the last few years, Latin America was at least able to count on the fact that the global economy was strong, markets were largely stable and foreign investment capital available — factors which cannot be guaranteed in the future.

“In all the Latin American countries, the situation is so uninspiring that we have to do a lot of soul-searching and ask why growth in the region is so mediocre and so below that in other emerging market regions,” says Goldman’s Ramos.

“In very broad terms, Latin America doesn’t invest enough, it doesn’t save enough, it doesn’t educate well enough, it doesn’t trade enough and it needs better and more modern infrastructure.”

The extreme polarization of politics across most of the region is also making it harder to achieve any kind of cohesion or consensus in societies that are already more diverse than in many other parts of the world.

The region’s two largest countries, Brazil and Mexico, are governed by populists of the hard right and the hard left respectively. Venezuela has an almost unbridgeable gulf between supporters of Maduro and his mentor Hugo Chávez, and the democratic opposition.

In Bolivia, Morales divided his country sharply along ethnic lines to energise his supporters and in Chile, the entire political class has failed in the eyes of protesters who accuse it of being unable to deliver a fairer society.

De Bolle sees an anti-incumbency trend among the sometimes contradictory currents.

“If there is an election, people are voting out those who have failed to deliver, whether on the left or the right,” she says.

“And they are voting in someone who promises to do things differently . . . But that doesn’t necessarily help resolve anything.”

Written by: Michael Stott
Source: Financial Times

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