Where Is Latin America Going?
During a recent tour of Latin America, I met some of the people who are heading or significantly influencing the new governments of the region. Here are some conclusions:
1. The new governments, many of them perceived as leaning toward free markets and the rule of law, have inherited a far worse situation than previously thought. One way to measure this problem is to look at the size of the fiscal deficits and the debt. Argentina’s consolidated deficit amounts to 7 percent of GDP, and although they are aiming for a zero-percent primary deficit in 2019, the servicing of the debt has gone up by 50 percent due to the rise of interest rates in the United States and the traumatic devaluation of the peso. In Ecuador, which has run fiscal deficits for the past ten years, debt-related payments have risen 42 percent. In Brazil, the fiscal deficit has risen 77 percent this year, with debt-servicing payments amounting to 6.2 percent of GDP.
2. Given the fiscal situation, the ferocious opposition they are facing and the lack of parliamentary majority, these governments are not focusing the lion’s share of the effort to put their houses in order on cutting spending. Although they are making cuts, in some cases courageous ones, they are also raising taxes and keeping public utilities subsidies, albeit at levels below where they were, for millions of people. The persistence of these problems and the tax increases are making it tough to foster private investment with the speed and volume needed to generate intense economic growth.
3. I mentioned the lack of parliamentary majorities. In Colombia, half of the governing party’s representation is critical of the government, as is the case in Ecuador (where the governing party is openly allied with a corrupt and fugitive former president.) In Brazil, the incoming administration’s party will command just ten percent of the Chamber of Deputies (although the new president, who will take over on January 1, will get the support of some other parties). Parliamentary majorities have been a source of abuse of power in Latin America, but after many years of authoritarian populism, the attempt to restore the rule of law and property rights, and transform the business climate, will be much tougher in the absence of congressional support.
4. Latin America is abuzz with speculation about Brazil. Will the next president, Jair Bolsonaro, govern as a right-wing populist? Will he try to overturn liberal democracy? Or will he abide by the constitution and successfully reverse the corrupt legacy of the Workers’ Party and its allies? The uncertainty is major news given that Brazil is the region’s commanding country. Several administrations have breathed a sigh of relief with the appointment of Sergio Moro as Brazil’s next minister of justice (he is the former federal judge who led the fight against corruption in recent years, sending scores of business people and politicians to jail through the due process of law) and the appointment of Paulo Guedes, a free-market Chicago-trained economist, as the head of an entity combining the finance, planning and industry ministries (Bolsonaro will reduce the number of ministries by half).
5. Taking the above into account, it is too early to say if the opportunity that has opened up for meaningful reform will meet the expectations of millions of Latin Americans who have thrown out of power several (but not all) of the demagogues and megalomaniacs that dominated the region in the early part of the new millennium.