Economies could topple region’s leaders


The end of this year brings a crucial coincidence: the economies of most South American countries are experiencing difficulties unknown in the last decade and, at the same time, several of its progressive governments face challenging elections which, also for the first time, could put an end to a historic left-wing political era in the region. Will that really happen?

The latest report by the economic think tank Ecolatina summarizes these trends well.

It recalls that CEPAL (the Spanish acronym for the Economic Commission for Latin America and the Caribbean) has reduced the expected Latin American growth from 2.7 to 2.2 percent, due to the problems of South American countries, especially its three most important markets: Brazil, Argentina and Venezuela.

There are many reasons to explain this trend. External, such as reduced world commodity prices, a stronger dollar, the slowdown of the Chinese economy and expectations of an interest rate increase in the United States. And, of course, domestic ones, relatively different in each country.

Ecolatina distinguishes three groups of South American countries in terms of economic trends. The first still leads growth rates in the region (Bolivia, Colombia, Ecuador, Peru and Paraguay); the second, intermediate, which shows some problems (Uruguay and Chile); and the third, with economies stagnant or simply recessive (Brazil, Argentina and Venezuela).

Brazil, Bolivia and Uruguay will hold elections next month; Argentina’s turn will arrive the following October; Venezuela is still far from having presidential elections but things could get messier and precipitate a recall referendum as early as 2016.


According to CEPAL figures, Bolivia will be the South American country with the highest growth this year (5.5 percent, moreover in a context of a balanced budget). This has led right wing opinion in the region to praise Evo Morales, despite the fact that until recently he was one of the most criticized (and even mocked) leftist leaders. It is important to consider also that those positive indicators were made possible by the improvement of fiscal revenue generated by the nationalization of gas, one of his more attacked measures.

Not surprisingly, Morales should have no trouble gaining a second re-election on October 12, despite the controversial constitutional interpretation that made it possible. Polls show him well ahead of his main competitors, who seem still unable to overcome the deep discredit of the traditional political class.


The future looks different for Brazilian President Dilma Rousseff. After eight years of strong growth and social improvement under Luiz Inácio Lula da Silva, she promised in 2010 to initiate an era of accelerated development. Instead, Brazil experienced a four-year period of slow growth and a sudden deterioration of expectations. Gross Domestic Product increased 7.5 percent in 2010, 2.7 percent in 2011, one percent in 2012, 2.5 percent last year and will end 2014 near zero: just 0.48 percent, according to the last weekly survey of the Central Bank. What about 2015? The country should feel lucky if it exceeds 1.5 percent.

There is a lot of self-inflicted damage in Brazil’s performance.

“Its manufacturing activity was weakened by the import restrictions implemented by Argentina (especially in the auto industry), public spending deepened the fiscal deterioration and threatened its investment grade, inflation continued to generate concern and a halt in household consumption eroded aggregate demand.” says Ecolatina. The promised positive effect of the World Cup on the economy was a disappointment as big as the 1-7 loss against Germany.

With things going like this, polls say that Rousseff could lead the first round of October 5 but would not be able to avoid a dangerous run-off against environmentalist Marina Silva. Moreover, the latter hangs onto a narrow (although shrinking) advantage for the second round. The game is far from decided but Rousseff still faces a sharp uphill battle.


Uruguay is part of the group of countries facing moderate problems. The report of the think tank founded by Roberto Lavagna, taking CEPAL projections, posits an expected growth of three percent for the current year but the country’s Central Bank reduced its estimate to 2.7 percent with the three percent coming next year.

An inflation rate that is persistently above the regional average (excluding the champions, Venezuela and Argentina, of course) of about 9-10 percent and budget deficits are the targets of the opposition candidates, the “white” (National Party) Luis Lacalle Pou and the “red” (Colorado) Pedro Bordaberry. Former president Tabaré Vázquez wants to keep his Broad Front in power but polls only guarantee this moderate politician a victory in the first round. The runoff would sum up the opposition vote and, quite possibly, put an end to the 10-year hegemony of the left.


Argentina has one of the most problematic economies in South America. The external factors that complicate it (aggravated by the vulture saga) have already been mentioned, but the persistent errors of its government have worsened things.

Meanwhile, the country cannot overcome a situation of recession (projected by private economists at about minus two percent for the year), high public spending and inflation, a fall in real wages and private consumption, a shortage of dollars and stiff control of imports. Next year, which will define the presidential succession, will not be easy, with public debt commitments to the tune of U$S 12 billion, a heavy burden for a Central Bank with only U$S 28 billion in international reserves.

“Henceforth the regional picture would become more adverse (for the region) as external conditions would be more operational in 2015. Slower growth in China, greater volatility of international markets because of the decision of the United States to disarm its monetary policy (expected by mid-2015) and lower prices of raw materials are the main constraints on the growth of South America,” Ecolatina predicts.

In this context, events seem to point to a right-wing electoral success, with little chances for pure Kirchnerite candidates like Florencio Randazzo. Daniel Scioli, Sergio Massa, Mauricio Macri, Hermes Binner or Julio Cobos have, in general terms, similar ideological profiles. With Cristina Kirchner legally out of the electoral game, an era will surely finish in our country.


Venezuela, finally, is the most troubled country in the region. An inflation of 60 percent, a expected GDP contraction of minus 2.5 percent and a serious shortage of basic consumption goods explain the critical situation well. In 2016 Nicolás Maduro will complete the first half of his term, and the Constitution allows from that moment on a recall referendum. It is foreseeable that the opposition will take that legal opportunity, which would present a huge challenge to Chavism, with Maduro’s popularity rates well below 40 percent.

It seems that there is a plausible relation between the economic and political cycles. This, perhaps leads to other questions. Have those “progressive” governments (with all the differences among them) changed the productive structure of their national economies or have they only distributed the wealth better? Have those virtuous social processes been achieved via bold reforms or just because of a happy combination of high international commodity prices, the abundance of financial capital and appreciation of their national currencies?

Nothing lasts forever but the future is still open. Many key elections are approaching and the different candidates can expose clearly their ideas and explain how they plan to solve problems long hidden by a favourable international situation.

But even if they do so, the future will necessarily be different.

We, with our votes, will define just how radically different it will be.

(Nota publicada en el Buenos Aires Herald).

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