Latin America is looking for a model that replaces the one that existed during the time of the bonanza, when regional growth was of 5%.
VERACRUZ – The region has set its sights on the future and doubts are already floating in the air. So what to do??
That is the question that has hit the political leaders like a dart, crossing corridors and secret meetings of the Ibero-American Summit held in Veracruz, Mexico. None of the proposals has achieved unanimity, but on the horizon of discussions there seems to loom a double formula that include the feared structural reforms and a strong urge to radically improve educational quality.
The problem is that, structural reform, as we have explained before, means deep cuts in public spending, which endangers investment in education, among other areas.
“We must enter into a second generation of public policies to return to growth. This is a cycle in the international environment, and the only way to cope is a productivity revolution and an explosion of innovation, “says the head of the Ibero-American Secretariat General, Rebeca Grynspan.
With the abrupt slowdown in economic activity and the imminent end via cheap dollar funding, Latin American leaders are closely following developments in Spain and Mexico, two countries that have undertaken profound reforms that have crippled large areas of their economies.
Although praised by international organizations, especially the International Monetary Fund (IMF), neither country can show anything positive.
In Spain for example, all time public spending is at its lowest. The government has cut pensions, frozen salaries and reduced the financing of social programs. In addition, unemployment for the economically active population has hit upwards of 25%.
In Mexico, the economic agenda has completed the legislative phase, but without achieving the expected reaction: GDP growth remains below the average of the last 20 years, and 2015 will not exceed the psychological barrier of 3%.
In Spain, although Rajoy proudly wields the greatest growth in the euro area with a 1.7% projection by the IMF for next year, that number still holds the sad record of total unemployment at 23,64%.
Countries subjected to drastic austerity programs have also exhausted the commodity boom and are now under growing social tensions, so finding strong policies has become a must.
The risk of disengagement of new international flows of prosperity beats stronger every day.
“We have not taken advantage of the wealth accumulated over the years, it was not invested where it should have been: education, infrastructure and innovation. And there is the danger of losing the opportunity again,” pointed out recently elected Costa Rican president, Luis Guillermo Solís.
“We must be open to the world,” added Solís, who as a professor and historian should know that the neoliberal agendas and policies previously adopted in Latin America in the 1990s, did not render anything positive and indeed were the culprits of his countries underdevelopment.
Despite such scenario, Solís has recently met with some traditional Costa Rican politicians of the likes of Oscar Arias Sánchez, his godfather in the last political campaign. “We must concentrate on technology transfers, end the commercial monogamy and lock down of the global economy,“ he said.
This need for economic opening coincides with a strengthening of public opinion, increasingly demanding and informed. In Costa Rica, for example, over a third of the population has refused to vote for the last few presidential elections. People in the Central American nation are tired of politics as usual, and both Solís and Sánchez had to go to a second round to clinch the presidency.
Transparency has become a necessity, not only to curb corruption, which gangrenes 7% of Latin American GDP, but to unleash the region’s economic potential.
Bringing honesty back to politics is a challenge that, according to Grynspan, needs to be responded to with urgency on the new agenda. She says that such change has at its core a strong commitment to quality education.
“Change is occurring at an unprecedented rate, a revolution is underway with digital technologies. Natural resources won’t decide the future of Latin American; human capital will,” said the president of Banco Santander, Ana Patricia Botín. She says the bank will invest $ 945 million over four years on a program to support university projects in the area.
What is a multinational bank doing in a meeting of political leaders? Offering free money? In exchange for what?
Educational advancement, however, collides with a long standing wall in Latin America: Inequality. Only 9% of students coming from 20% of the poorest regions have access to college, compared to 50% of the 20% richest. “It’s terrible. It is that inequality that is transmitted through generations,” said OECD Secretary General, Jose Angel Gurria.
But the recipe that may come out of Veracruz to end this scourge is not of everyone’s liking. There is a huge gap between the most influential countries in the region, such as Brazil, Argentina, Venezuela, Bolivia and Nicaragua, whose agendas are far apart from the nations who attend the meeting. In addition to such division, both Brazil and Argentina are busy with their internal problems.
While Dilma Rousseff’s credibility is lower than ever before due to government corruption schemes, Argentina is being devoured by the recession.
In Venezuela much effort is concentrated on distancing from the more liberal axis, one of whose most significant representations is the Pacific Alliance, formed by Mexico, Colombia, Chile and Peru. These four countries represent more than a third of Latin America’s GDP.
While the four countries have taken measures to open their economies almost completely to foreign products by removing 92% of tariffs to those products, the socialist bloc and its supporters are still struggling to explain their citizens why, despite much natural riches, it has become impossible to grow.
The neoliberal countries that usually side with The United States on political and economic matters are showing an unusual vitality to the point that they plan to expand their business opportunities with Asian countries.
This distancing in Latin America portends a time of friction. Nobody doubts it is impossible to achieve total homogeneity in the economic outcome for 605 million inhabitants, but the leaders know the healing power of synergy.
“The growth of the economy and trade between the countries of Latin America are prerequisites for achieving greater well-being, a better distribution of wealth and fighting the scourge of unemployment,” said the King of Spain in Veracruz. “If you want to go fast, go alone; but if you want to go far, do it accompanied,” said the Ibero-American Secretary General.
The two issues that Latin America seems to need to resolve which may facilitate their way forward are extreme poverty and political corruption, but with the same type of politicians being advised by the same corporate interests, it is hard to see how growth and employment will take center stage. The most likely outcome will be a decision to apply the same painful medicine used in Spain, Greece, Cyprus and other European countries, where the economies continue to be financed not by production, but by debt, artificially created money that stems from electronic transactions, not from real business interactions.