In My Opinion

Andres Oppenheimer: South America may not head Zimbabwe’s way

 

aoppenheimer@MiamiHerald.com

A joke making the rounds in Latin American business circles says Brazil is looking increasingly like Argentina, Argentina is looking increasingly like Venezuela, and Venezuela is looking increasingly like Zimbabwe.

Are things really going that bad? Or is it wildly exaggerated to imply that countries in the region are heading toward the economic mismanagement and chaos that characterized Zimbabwe in recent years?

Let's analyze the joke backwards, starting with whether Venezuela is heading toward a Zimbabwe. In this case, the answer seems to be yes.

According to the newly released Index of Economic Freedom, an annual study by the Washington D.C.-based Heritage Foundation, Venezuela is virtually tied with Zimbabwe among the world's most repressed economies.

Of the 178 countries included in the study, ranked from the freest to the most repressed economies, Venezuela ranks 175th and Zimbabwe 176th. They are surpassed only by Cuba (177) and North Korea (178.)

Venezuela’s inflation rate is of more than 50 percent a year, one of the highest in the world. By that measure, Venezuela is doing worse than Zimbabwe.

While the African nation printed money like crazy during the past decade — like Venezuela is doing now — and ended up with hyperinflation in 2008, in 2009 it adopted the U.S. dollar and other hard currencies, and started opening its economy. Its current annual inflation rate is about 10 percent.

Despite Venezuela being one of the world's top oil producers, its economy will grow by only 0.5 percent in 2014, the slowest rate in Latin America, according to World Bank projections. Zimbabwe is projected to grow 3.3 percent this year, according to the World Bank.

When it comes to hyper-bureaucracy and chaotic management, Venezuela may be a world champion.

On Jan. 9, Venezuelan President Nicolás Maduro created 111 vice-ministries, including the Vice-Ministry of Supreme Economic Happiness. According to the official decree, the new vice-ministries will “optimize the results and the impact of the work being done by the national government.”

To make things worse, Venezuela has become one of the world's most violent countries, with much higher homicide rates than Zimbabwe, according to United Nations statistics.

Is Argentina looking increasingly like Venezuela? Yes and no.

According to the Index of Economic Freedom, Argentina ranks 166th in the world, nine places ahead of Venezuela, but within the same group of “repressed’’ economies.

Inflation in Argentina is more than 25 percent a year, although President Cristina Fernandez de Kirchner's populist government claims it's only about 10 percent, and people there are rushing to buy U.S. dollars in anticipation of a major devaluation.

Like Venezuela, Argentina has recently nationalized foreign firms — such as Spain's Repsol oil company — corruption is rampant, and the government has tried to control all major institutions.

But the Kirchner government has not yet been able to silence the media — although it is trying hard — and can't manipulate elections that easily. The government lost recent legislative elections, and there is a general expectation that Argentina will get a more responsible government after the 2015 presidential elections.

Is Brazil looking increasingly like Argentina? Not really, although sometimes it gives that impression.

According to the Index of Economic Freedom, Brazil ranks 114th in the world, about 40 places ahead of Argentina.

Granted, Brazilian President Dilma Rousseff, who is running for re-election in October, is failing to take measures to promote investments, and is sticking to a Third World foreign policy that keeps the country from signing trade deals with the world's biggest economies.

But Rousseff has fired more than half a dozen of her cabinet ministers over corruption charges, and Brazil's Supreme Court has sentenced leading ruling-party politicians to prison on charges that they bribed legislators. None of that has happened in Argentina, much less in Venezuela.

Likewise, Brazil is thinking long term on issues such as education, science and technology, which is not the case among its South American neighbors.

My opinion: The idea that much of Latin America is falling into a downward spiral makes for good jokes, but it's most likely untrue.

Sure, Venezuela may descend into further chaos, but it doesn’t have many followers. Argentina will most likely change course within the next two years, and Brazil will, in the worst-case scenario, remain stagnant.

More importantly, Mexico, Colombia, Peru, and Chile are doing well, and may drag several other countries in their direction. Together with Brazil, the four Pacific-coast countries make up more than 75 percent of Latin America’s economy.

More than a downward spiral, we may soon see the end of the populist cycle, and the beginning of an upward spiral.

Read more Andres Oppenheimer stories from the Miami Herald

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