In recent days, I interviewed the heads of the Latin American departments of the three main international institutions that track the region’s economy, and what they said threw me into a temporary state of depression.
All three of them — the head of the Latin American departments of the International Monetary Fund (IMF), the World Bank, and the United Nations’ Economic Commission for Latin America and the Caribbean (ECLAC) — said they expect Latin America to show zero growth in 2016. It will be the fifth consecutive year of no growth in the region.
They also agreed that, overall, South America will do badly this year, while Central America and Mexico will do somewhat better.
While South America’s biggest economies will suffer because of their dependence on commodity exports to China, whose economy is slowing down, Central America and Mexico will benefit from their close ties with the United States, where the economy is expected to do well.
The zero growth projections for Latin America in 2016 are worrisome because the IMF, the World Bank, and — more so — ECLAC tend to be overly optimistic in their annual forecasts for the region. Over the past four years, they have predicted a regional recovery that didn’t happen.
“Economic forecasts since 2012 have always erred in predicting more growth than what really happened,” conceded Augusto de la Torre, the World Bank’s chief economist for Latin America. “I think that forecasters are now becoming more realistic, and humbler.”
For Brazil, South America’s biggest economy, the consensus among the three regional economic experts was that its economy will contract between 2 percent and 2.5 percent in 2016, following a near 4 percent contraction in 2015. Brazil’s dependence on commodity exports to China and corruption scandals that are threatening to trigger an impeachment of President Dilma Rousseff have caused a major recession.
Venezuela, whose economy collapsed by between 7 and 10 percent last year, will contract by a similar percentage this year, the three experts said.
Alejandro Werner, the head of the IMF’s Latin American department, said Venezuela’s inflation reached a world record of 270 percent in 2015 and “may continue to move upwards in an explosive way.” The IMF’s official annual forecasts scheduled to be released in coming days may put Venezuela’s inflation rate at more than 500 for 2016.
For Argentina, the three international experts agreed that new president Mauricio Macri has inherited an economically crippled country, whose economy will only grow between 0.5 percent and 1 percent in 2016.
But they praised Macri’s first economic measures, and expressed optimism about the county’s future. Macri’s economic measures may restore business confidence and draw investments, which could inject new blood into the economy in late 2016 or 2017, they said.
“Clearly, there is a possibility of an important positive surprise in Argentina within the next two years,” the IMF’s Werner told me.
For Mexico, the three regional economic experts predicted a relatively healthy growth of between 2.6 percent and 3 percent this year, thanks to a growing U.S. economy. “Within a context of recession, Mexico is not doing badly,” ECALC’s Barcena said.
My opinion: This fifth year in a row of sluggish growth in much of Latin America, and of outright economic crisis in some countries such as Venezuela and Brazil, should move the region into taking drastic steps to diversify its exports.
All South American commodity exporting countries should write into their constitutions the task to create “revenue compensation funds,” such as those of Chile and Norway, which save a percentage of their export incomes during boom years in order to be able to pay for their social safety nets during bad years.
But more importantly, they should urgently focus on innovation, and on producing more value added and high-tech exports, which — in the current knowledge economy — are worth increasingly more than raw materials or most manufactures. (Just think that Uber, a cell phone application that offers transportation services and doesn’t own any vehicles, has a market value of $60 billion, more than that of General Motors, which produces more than 10 million vehicles a year.)
If Latin America — especially South America — doesn’t expand its export basket, we will have many more years of depressing forecasts.
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Watch “Oppenheimer Presenta” Sundays at 9 p.m. on CNN en Español