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Under the Latin American Volcano

Most of Latin America is still far from the horrific conditions prevailing in Venezuela, where output has fallen by a staggering 75% since 2013. But, given the ongoing humanitarian catastrophe there, and the specter of political instability elsewhere, investors should not take a sustained economic recovery for granted.

CAMBRIDGE – The current disconnect between market calm and underlying social tensions is perhaps nowhere more acute than in Latin America. The question is how much longer this glaring dissonance can continue.

For now, the region’s economic data keep improving, and debt markets remain eerily unperturbed. But seething anger is spilling out into the streets, particularly (but not only) in Colombia. And with the rate of new daily COVID-19 cases in Latin America already four times higher than the emerging-market median, even as a third wave of the pandemic sets in, the region’s 650 million people face an unfolding humanitarian disaster.

As political uncertainty rises, capital investment has stalled in a region already beset by low productivity growth. Even worse, a generation of Latin America’s children have lost nearly a year and a half of schooling, further undermining hopes of achieving educational catchup with Asia, much less the United States.

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