BOGOTA, COLOMBIA — 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.