A Latin American decade?

The reformers have won, but they have yet to consolidate their success

Economist

SUMMIT meetings involving Latin America’s presidents are so frequent these days (one is pictured above) that Mexico’s Mr Calderón has likened diplomacy in the region to a mountain range. Yet for all the talk of regional integration, political Latin America looks more divided than ever. Mr Chávez likes to threaten war against Colombia, which in turn accuses him of harbouring its FARC guerrillas. Sub-regional trade groups such as Mercosur and the Andean Community, which made progress in the 1990s, have stagnated or fallen apart.

Yet while the politicians bicker, corporate Latin America is quietly moving closer together. A growing army of multilatinas have expanded abroad. Some, like Embraer or Bimbo, have become global multinationals. Many others, including Chilean retailers and Brazilian banks and construction firms, have expanded within Latin America. Some Mexican firms, led by América Móvil, a telecoms giant, are moving into Brazil. Until recently such firms tended to list their shares in New York, but now a Latin American capital market is poised to emerge. In three to five years there will be a seamless network of Latin American stock exchanges, including Mexico’s, reckons Mr Oliveira of BRAIN Brasil.

The market-oriented reforms of the 1980s and 1990s, combined with a few years of commodity-driven prosperity, are transforming Latin American business. Together with more progressive social policies, these forces are starting to create more dynamic and less unequal societies too. Whether these trends can be sustained depends in part on what lessons the politicians draw from the region’s relative buoyancy in the recession.

Thanks to the commodity boom and rising revenues, governments in many countries have had an easy time of it in the past few years. Presidents have generally been able to avoid difficult reforms. All this has generated a sense of complacency, even triumphalism in the region. After all, as Lula put it, it was “blond, blue-eyed bankers” elsewhere who screwed up world capitalism on a scale that not even Latin America managed in the past.

Perhaps the region first had to stabilise its economies and build its social safety net before embarking on microeconomic and institutional reform. But if it is to achieve the goal of development over the next decade, more reform will be needed. The list of pending tasks is long: set aside some of today’s revenues for long-term infrastructure projects, for saving against a commodity bust in a stabilisation fund or for pensions for a population that will soon start ageing; get the rich and the tens of millions in the informal economy to pay more tax; take on the teachers’ unions to improve schooling; reform labour laws, pensions and health care to create a fairer system of social protection; tackle the drug gangs and the vested interests in the judicial system.

Though daunting, this should be less difficult to achieve than dismantling dictatorship and stabilising the economy proved to be. Latin America turned to the market and to democracy because in 1982 it was bankrupt. The new policies mostly worked eventually, once they were backed by a social safety-net. But some countries did not stay the course. For the past decade an ideological battle has raged between reformers—be they liberals or social democrats—and those, such as Mr Chávez, who would return to the authoritarian past. The reformers seem to have won the argument, though it may take a while longer for that to become clear. Now they must consolidate their victory by demolishing the remaining barriers to development.