MONTEVIDEO – Latin America is coming to the end of an extraordinary cycle of growth that has transformed much of the continent, especially its commodity-exporting countries. But, as the boom recedes, a deep, debilitating weakness is becoming increasingly apparent: the region’s inadequate education systems. This shortcoming undermines the continent’s longer-term economic prospects, social stability, and fight against poverty.
Such dire warnings have been obscured in recent years by headline-grabbing GDP figures. From 2004 to 2011 (excluding the crisis year of 2009), the region almost doubled its long-run average growth rate. This sustained period of expansion was all the more noteworthy because it followed a half-century of relative decline, with Latin America’s per capita income relative to the United States falling from around 50% in the 1950’s to 23% in 2004.
Faster economic growth, rising incomes, and wealth redistribution over the past decade – fueled by sound macroeconomic policies, foreign investment, and rocketing commodity prices – have helped to reduce poverty rates by 13 percentage points, and extreme poverty by five percentage points. This has expanded the middle class (as measured by household income), which in turn has helped the region consolidate democracy.
The good times were also buoyed by easier access to low-cost capital, much of which has come in the wake of the global financial crisis. As investors sought the higher yields on land, property, equities, bonds, and bank deposits that were attainable in emerging markets after 2008, capital inflows to Latin America tripled, boosting asset prices, credit, and aggregate demand.