New economic projections from the World Bank and the United Nations show that Latin America countries will keep growing at moderate rates this year, except for the booming economies of three countries that start with the letter P — Paraguay, Panama and Peru.
Before we get into what the P countries have in common, and why the World Bank and the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) are backtracking from their sometimes overly-optimistic projections in recent years, let’s take a look at their latest figures.
According to a new World Bank report on Latin America, As Tailwinds Recede: In Search of Higher Growth, Latin America will grow 3.5 percent this year, a slight improvement from last year’s 3 percent growth, but significantly below the 5 percent annual growth rates of the past decade.
The region’s economic stars in 2013 will be Paraguay, which will grow about 11 percent, and Panama and Peru, which are projected to grow 9 percent and 6 percent respectively, the World Bank study says.
Chile, Colombia and Bolivia will grow by respectable rates of between 4 and 5 percent, while Brazil and Argentina will grow by nearly 3 percent, it says. Latin America’s worst performing economy will be Venezuela, which will grow by 0.1 percent, or virtually nothing, the study says.
The World Bank report notes that the tailwinds that helped much of Latin America grow rapidly in the past decade, such as high commodity prices and steadily-growing Chinese imports, are no longer there.
Today, Latin America finds itself in a “windless” global environment, in which future growth will depend on each country’s own economic policies.
“The tailwind is gone, and we can no longer sail effortlessly,” the report concludes. “It is time to row.”
Likewise, a new report from ECLAC revised regional economic projections downward to 3.1 percent from the 3.8 percent it had projected in December.
Latin America’s fastest growing economies in 2013 will be Paraguay (10 percent,) Panama (8 percent) and Peru (6 percent,) ECLAC says. Mexico will grow by 3.5 percent, while Brazil and Argentina will show “a less dynamic than expected recovery” from last year’s downturn, it said.
Most economists say that Paraguay, Panama and Peru are benefitting from different factors.
Paraguay’s economy is rebounding from a sharp recession following the country’s political crisis last year, and benefiting from record crops. Panama is reaping benefits from huge investments linked to the ongoing expansion of the Panama Canal, and Peru is being helped by a flurry of investments stemming from its pro-business policies over the past 15 years.
It may be too early to get excited about Paraguay (a one-year spurt may be a statistical blip of little relevance,) but Peru and Panama are a different story. Peru and Panama have been growing steadily at rates that almost double the region’s average in recent years.
“In Peru and Panama, we see an investment dynamism, and a significant optimism among investors,” Augusto de la Torre, World Bank chief economist for Latin America, told me in an interview. “They are also making significant advances in their efforts to improve the quality of their public education systems.”
My opinion: While the reasons behind their rapid growth differ, Latin America’s P countries have some things in common.
Unlike Venezuela, Argentina, Bolivia, Ecuador and other countries whose populist leaders scare away investments by creating a climate of confrontation to blame others for their economic shortcomings, the P countries roll out a red carpet for domestic and foreign investors.
And while Venezuela, Argentina, Bolivia, and Ecuador have grown over the past decade largely thanks to external factors — such as booming world prices for oil, gas and soybeans — Perú and Panama are growing to a large extent thanks to their economic policies. They offer economic stability and no changes in the rules of the game with every new government.
And the end result is clear: Peru has reduced its poverty rate by half, from 55 percent of the population to 28 percent, since the beginning of the millennium. That’s much more than what has been accomplished by most countries with populist leaders who scream in front of the microphones, scaring away investors and creating needless social confrontations.