0

Latin America's Locust Years

The bad news keeps coming in Latin America these days. Economic conditions worsen almost everywhere, social cohesion unravels and political instability mounts. Little wonder, since much of Latin America spent the last twenty years going nowhere. Assets were sold and national debts ballooned, but almost nothing lasting and beneficial was gained. Truly, these were years that the locusts ate.

Over the past 20 years, annual per capita GDP growth in Latin America averaged 0.35%. At that pace, an economy would need 200 years to double in size. In Asia, the standard of living doubles every decade . With such anemic growth, how can Latin America expect to compete in world trade except through ever shrinking wages?

Profound misgovernance, not bad luck, is to blame for economic stagnation. If Latin America does not change, it may increasingly look like Africa--a region of weak states with large informal economies and widespread poverty. Four factors have put it on this path.

First, in Latin America's privatization gold rush, everything from public utilities to manufacturing companies went on the auction block. For a short time, asset sales helped balance national budgets, and also provided resources for sustaining consumption. In the end, the income from privatization delivered little in the way of better infrastructure or more competitive exports.