Thursday, December 6, 2012

VOXXI: The rise of Latin America, a response to Foreign Policy’s Ruchir Sharma

The Rise of Latin America - a response to Foreign Policy's Ruchir Sharma
W. Alejandro Sanchez
December 5, 2012
Originally published:

In a December article published by Foreign Policy, Ruchir Sharma, head of emerging-market equities and global macroeconomics at Morgan Stanley Investment Management, names seven countries as “breakout nations.” He argues that these states have experienced more major economic growth in recent years than the BRIC nations (Brazil, Russia, India, China) and therefore should receive particular attention from the international community. For Sharma, the nations to watch are the Philippines, Turkey, Indonesia, Thailand, Poland, Sri Lanka and Nigeria. Experts on Latin America will quickly notice that there is not one Latin America nation on Sharma’s list.
Everyone is entitled to their opinion and there is no requirement that a list of breakout economies must include a nation from each region of the world. Sharma also doesn’t mention any country from the Caribbean, Oceania, or the Middle East. Nevertheless, several Latin American nations, such as Peru, Mexico, Chile, and Colombia, have enjoyed major economic growth within the past decade, comparable to some of Sharma’s nations, and they deserve to be mentioned for the sake of a comprehensive picture of emerging economic powers.

Growing and growing

Over the past decade, Latin American nations have experienced significant economic growth, with the four aforementioned states serving as the region’s own “breakout nations” (although they are each, to some extent, eclipsed by booming Brazil). For example, Colombia’s economy grew by 4.9 percent in 2012’s second trimester in comparison to the same period in 2011. The sectors that enjoyed the most growth were construction, mining and finance. In addition, the U.S. Congress ratified a free trade agreement with Colombia in October 2011 which will further promote a favorable economic relationship between the two nations. Meanwhile, Peru’s economy grew by 6.5 percent in 2012’s third trimester, in large part thanks to manufacturing and agricultural production. Stability within this Andean nation has also translated into an increase in international tourism, a critical source of revenue for small businesses in tourist regions like Cuzco. Chile continues to have South America’s strongest economy, with an average annual growth rate of 5.2 percent. Finally, Mexico has enjoyed a developing economy as well; according to CEPAL it will grow 4.0 percent in 2013 thanks to improvements in the U.S., its vital trade partner. Some optimistic analysts predict that Mexico could surpass the Brazilian economy by 2022. Just like Ruchir Sharma highlights how countries like Indonesia and Turkey will become trillion-dollar economies, the economic growth of states like Mexico—home to the world’s richest man, Carlos Slim—is a positive development, demonstrating that there are economic powerhouses in the region other than Brazil.
Latin America’s growth has also translated into strengthening trade relations with extra-hemispheric nations, which see the potential for successful investment in the region. For example, Colombian minister Diaz-Granados recently explained that trade between Colombia and Spain surpassed $2 billion, a significant growth compared to 2011. In addition, both Colombia and Peru are also close to signing a free trade agreement with the European Union. Finally, commerce with Asian states is expected to grow as Peru and Chile, along with the U.S., are part of the Trans Pacific Partnership (TPP), a project currently in the negotiation stage that aims to strengthen trade relations between the major Pacific economies. Extra-hemispheric nations that are also TPP members include economic powerhouses like Singapore, New Zealand and Australia. Regarding Latin America, more investments and external trade is generally regarded as a sign that the region in general has become an attractive commercial partner.

Ruchir Sharma and security issues

One topic that is not deeply discussed in Sharma’s commentary is security, although he does acknowledge, when talking about Sri Lanka, that violence affects an economy’s performance. Sadly, several of Sharma’s nations as well as Latin American states continue to face security issues that may hinder their growth in the coming years. For example, the Mexican government and security forces have battled powerful drug-funded organizations such as the Zetas and the Sinaloa Cartels for years. Apart from the thousands of lives that have been lost in this drug war, many in gruesome manners, there is concern than the Mexican economy has become somewhat dependent on the millions made from the illegal drug economy. Meanwhile, the Colombian government is currently in negotiations with the FARC guerrilla movement to end a conflict that has lasted for decades. Similarly, the Peruvian government continues to battle drug trafficking (the U.S. government claims Peru is now the world’s major cocaine producer, not Colombia) as well as the last remnants of the Shining Path terrorist organization. Chile is the only country that has not had to face violent domestic movements, though the government has faced major protests by dissatisfied sections of the population, such as secondary and university students, in recent years.
However, the security issues faced by these Latin American states are similar to most of those on Sharma’s list. For example, Turkey has waged a war against the PKK, a violent Kurdish nationalist organization, for years. The Turkish economy may suffer if Ankara becomes more embroiled in the Syrian civil war. Meanwhile, Nigeria continues to suffer from corrupt leaders—as Sharma highlights—and violence, particularly from a group known as Boko Haram, which has waged war against the government since 2009. On December 2, 10 Christians were killed in Northeast Nigeria at the hands of Boko Haram in the latest security incident. Put simply: Sharma’s rising stars and several Latin American states face similar internal security threats. Even Thailand, usually regarded as a stable nation, has seen a rise in insurgency in recent years (as Sharma points out as well). The one stable country in Sharma’s list is Poland, which does not face insurgent internal violence.

The Latino breakout nations

Ruchir Sharma’s list of breakout nations in Foreign Policy, while generally comprehensive, is incomplete. In spite of internal security issues and other problems like corruption scandals and environmental problems, countries like Mexico, Peru, Colombia and Chile have flourished, particularly during the past decade. The fact that Lima, Mexico City and Bogota in particular, have managed to thrive in spite of guerrilla movements and drug-related violence is nothing short of remarkable. Hence, these nations are worthy of any list that has the title “breakout nations.”

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