Region’s future is on the line tomorrow

Brazil, the region’s giant, will choose tomorrow between President Dilma Rousseff and Senator Aécio Neves, in a race that combines every conceivable ingredient: a woman vs. a man, a socialist vs. a conservative, a defender of the Mercosur vs. a champion of opening up trade.

In addition Uruguay will also hold presidential and legislative elections tomorrow, although a second round on November 30 will be needed according to the latest polls. Except for the gender aspect, the dilemma will be similar to Brazil’s: some degree of state intervention in economy vs. the free market, oncologist and veteran politician Tabaré Vázquez vs. the elegant young Luis Lacalle Pou.

We Argentines are next in line, waiting for the October 2015 elections. A main difference though is that there seems to be no dilemma ahead, given that all of the candidates with a good chance of winning are centre-right oriented.

In all of these countries, but especially in Brazil and Argentina, what is at stake is how to recreate a cycle of economic growth now that the international winds seem to be blowing against the region.

After more than a decade of income-distribution policies in the region, the time has come for investment. But how much the future governments will have to concede to the financial markets in order to restore the so-called “investor-friendly climate” is the key. The demands are strong and almost extortionate, at least if we judge the issue by the catastrophic reaction Brazil’s Bovespa stock exchange each and every time a poll suggests that Dilma Rousseff is likely to win re-election.

Something that is frequently forgotten is how much the friendly international scenario over the last few years has helped emerging economies. In our neighbourhood, that context allowed for radically different governments to have success: from Chavism to Uribism, from the Chilean Concertación to Piñera’s administration, from Kirchnerism to Lulism.

It may be politically advantageous to talk about “models” — and in large part also valid — but the climate has been a constant in all cases.

Now things look dangerously different. The eurozone is not showing any signs of recovery. Another key engine of world economic growth, China, is operating at half speed with an annual Gross Domestic Product (GDP) growth of 7.3 percent. That may look impressive to us earthlings but it does not come close to the rate needed to create enough jobs to balance social needs.

China, a huge buyer of commodities, is not helping our countries any more.

Oil prices have gone down to a minimum of US$80 per barrel, hitting Venezuela and Ecuador particularly hard, not to mention the promises of investment in Brazil’s offshore deposits and in Argentine shale gas and oil formations.

Soybean prices have fallen by 40 percent in the last five months, to the despair of our country, its fiscal revenues and its supply of desperately needed foreign currency.

Copper, Chile’s main export product, is also suffering and its prices are the lowest in several months.

Not surprisingly, foreign direct investment (FDI) has fallen 23 percent in Latin America in the first half of the current year, totalling US$84 billion, the Economic Commission for Latin America and the Caribbean (ECLAC) reported on Thursday.

The figure underlines a sharp contrast with the outlook at the beginning of the year that predicted a 10 percent growth.

The ECLAC report said that “among the factors behind the decline in FDI to the region we include the absence of large corporate acquisitions during the first half of 2014” and “cooler mining investments because of the fall of metal prices.”

At the country level, FDI fell 66 percent in Mexico in the period, 54 percent in Venezuela, 20 percent in Argentina and 16 percent in Chile.

Brazil, on the other hand, saw 8 percent growth and Uruguay, 9 percent.

In all cases, how to restore economic prosperity is the topic du jour, especially in the countries that will be going through an election.

Brazil is the best example. It has often seemed like the only issue of the long campaign. Neves bets on private initiative, less state regulation and stiff monetary policies, while Rousseff warns against austerity that she says would overturn the recent advances for the poor and the middle classes.

High commodities prices have been a blessing to Latin American countries and explain a good part of the social advances of the last decade — the rest, of course, has depended for better or worse on national policies.

Although (nothing is perfect) the prices also explained a new wave of primarization of the regional economies, satisfying lazy governments in the short term and delaying the necessary debate about industrial development.

The new scenario forces our countries to redefine their growth models, giving special relevance to investment. To preserve the minimum levels of social welfare while doing so is the most important challenge ahead.

Brazil and Uruguay will have the first opportunity to decide tomorrow. After that, it will be Argentina’s turn.

(Nota publicada en el Buenos Aires Herald).031