Friday, April 08, 2011

The political side of Latin America economics prospect

There has been wide spread positive evaluation of Latin America economies, specially considering its relatively faster recovery than the rest of the economies ,after the big financial crash of 2008.
Some analysts have divided the continent in two blocs: the one leading by Mexico which include Central America, and the other one leading by Brazil which include some of the southern countries of the continent but exclude others .Besides, the later group have on average higher rate of economic growth , than the former. Besides there is also a third group which supposedly follow Venezuela .
Whether this classification is useful or not is a different matter. But it allows to make comparison among them, taking into account its economic performance. Let take a quick look at it with some data which might be revisited either upward or downward.
Projected Inflation rate 2011 : Venezuela 50%,Brazil 4.5%.Mexico 3.8%
Projected Economic growth 2011:Venezuela -5%, Brazil 4,5% Mexico 3.2%
It is clear that the first two groups are in a better shape in its long run perspective. Which are the causes ?.-
The preliminary approach suggest that there is a wider gap between politics and economics in the third group, than in the other two groups.
Politics and economics, get along with one another in a smooth way when they are complementary. Politics support economics, when it creates friendly environment for investment, but it might be a constraint for economics, when it distort the key price signals which investment is based on .As a result, in this later case economic growth is lower than in the former caser. In such a situation, politics get into a conflict with economics because it make more complex the dilemma between the social requirements and needs, which requires more fiscal expenditures ultimately leading to more inflation, and the implications for private sector which have access to fewer resources to foster growth .Social needs end up being solved ,at expenses of economic growth.
What about the implications?
The experience in Latin America since the nineties, indicates that social needs ,are better solved with stable economic growth. In fact ,poverty reduction is possible to be sustainable when it is supported by increasing new opportunities arising from growth. Current available data shows that poverty in Latin America has decreased ( roughly 42%) after several years of efficient matching between politics and economics .
The State on its own is more limited to offer new opportunities to make sustainable poverty reduction programs , because it has no way to finance them at a cheaper cost than the private sector.
Greeks philosopher ,used to say that politics instead of economics, should be the one to lead society .However, as long as politics might be contaminated with ideology, it goes in collision course with economics. Were wrong the Greeks philosopher ?. Not necessarily so. These days the real meaning of politics, deals with the ethics of freedom and welfare as much as the ethic of justice. It is because of freedom ,that people might have the chance to improve its quality of life and standard of living, just because each one decides on their own to pursue what it is suitable and better for it, and not because some else try to do so, like a paternalist guide. Thus , although it seems that there is more than one way to get Latin America on its feet as a global partner, a more realistic orientation suggest that choices are more restricted, unless we want to move backward history clock.-