The Economics, Both Real And Imagined, Behind Latin America's Unrest
Many people have had to tighten their purse strings in recent years. But that's only part of what's fueling frustrations in the region.
BUENOS AIRES — The deep divisions present in most Latin American societies are well known and longstanding, and include economic, social, ideological and even racial factors. The solution to conflicts in these societies was always difficult, but since 1980, most of them have been resolved through voting. That has changed in recent years, with discord spilling onto the streets and an increased use of violence, as evidenced in Venezuela, Nicaragua, Ecuador, Chile and Bolivia.
The recurrence of unrest in other countries seems to confirm a belief that many parts of the world are in convulsion. Economic demands are becoming mixed with resurgent nationalism in several regions, provoking divisions that require complex, multidisciplinary solutions that are as yet unclear.
Latin America has now joined the trend we have been seeing elsewhere in recent years — in Greece and Catalonia, in France with its Yellow Vests, and in Iraq, Hong Kong and various Arab states — all in the framework of a broader, commercial and cultural confrontation between two superpowers (the United States and China). Europe, meanwhile, struggles to find an orderly solution to the Brexit problem.
As analysts, we are obliged to redouble our efforts and work together to find a logical explanation for all this. It might be helpful to consider what the U.S. political analyst Joseph S. Nye said almost three decades ago: regimes do not change due to objective variables like poverty, repression or income levels, but because of changes to those variables.
The recurrence of unrest in other countries seems to confirm a belief that many parts of the world are in convulsion.
The political effects of changes to economic conditions in Latin America in recent decades may confirm his premise. And without an adequate diagnosis, it would be difficult to find an adequate solution. As I pointed out several times in this column, a classical economist would never have thought of separating economic analysis from social and political issues. Their analyses would have focused on studying the "great dynamics' that include all these factors. All efforts to design isolated economic, social or political formats have ended in failure.
The current situation is not conducive to balance: The dynamic of the spontaneous uprising is unpredictable, and it's unclear whether these will always lead to better social conditions. The revolts termed together as the Arab Spring, which have much in common with happenings in our region, clearly illustrate this.
The movement had no leader, was summoned up through social networking and led to massive protests that shared a goal (obtaining the removal of individuals identified as dictators) amid a plethora of other inorganic demands and complaints. The results were not always positive. It ended well in one place — Tunisia — as the academic Andrés Malamud points out. But in places like Egypt, one military ruler has ultimately led to another and in Libya, factions have usurped the state's authority. In Syria, the uprising gave way to a civil war.
Rubble in Syria — Photo: Ryad Alhussein
Latin America faces a great challenge. A decade of brisk economic growth didn't do away with divisions. It only submerged them, and today, as economies falter, divisions resurface.
Between 2002 and 2011, Latin America's total terms of exchange improved by almost 35% before worsening from 2012. The improvement in the first period not only boosted revenues in most countries, but also bettered their fiscal and foreign trade accounts. And this "raise" in regional wages allowed a rise in people's purchasing power and living standards without an overall deterioration in the current account balance. Governments should have saved part of their extra earnings then, knowing that cycles come and go.
When revenues dipped, not only were governments unable to implement anti-cyclical policies, but they had to adjust spending to new earning levels. In some cases, they didn't even do that, raising spending instead in a bid to offset the effects of falling revenues. Spending deficits came to exceed 5% of GDP in most countries, and reached 8% in some.
A decade of brisk economic growth didn't do away with divisions.
On the foreign front, the bonanza allowed an increase in imports at twice the rate of exports, without harming the currency account balance and even reducing external debt, thanks to the impressive rise in the price of our export products. With a worsening of exchange terms, the volume of imports did not rise but the exchange balance deteriorated, creating more debt.
These vicissitudes were clearly reflected in politics. All governments gained by an ample margin in boom times, and most were defeated when the economy slowed, which was logical given the socio-economic indicators. Between 2002 and 2012, average poverty levels sank from 45% to 27%, and levels of extreme poverty from 12% to 8%, marginally becoming worse after that. These are the changes in objective conditions to which Nye refers.
My friend, the Argentine economist David Konzevik, anticipated these developments in 2000 when, at an UNESCO conference, he spoke about the "Revolution in Expectations." Once information is instantaneous, "we must reconsider matters," he said. "The poor today are rich in information and millionaires in expectations."
The contrasting welfare of different social sectors, even when the worst off are not as badly off as before, fuels aspirations and can arouse resentments. The challenge for the world today is to reconcile those feelings with the economic realities of each country.
*Riccardo Arriazu is an Argentine economist.