The International Monetary Fund and the World Bank are preparing to put out their annual Latin American economic forecasts, and they won’t look pretty. Judging from what I heard in interviews with their top regional economists, Latin America’s overall economy will contract for the second year in a row in 2016.
What’s worse, the region’s economy is likely to remain depressed for much of the rest of the decade, although some countries will do better than others, the reports — due to be released April 12 — will say.
But before we get into why I’m optimistic that the region may recover sooner than expected, let’s take a quick look at what the world’s two biggest international institutions are thinking.
The IMF makes its own economic projections, while the World Bank does its estimates based on a basket of sources. The IMF spoke on condition that I don’t publish specific numbers before its report’s publication, but only ranges of countries’ projected economic growth.
Premium content for only $0.99
For the most comprehensive local coverage, subscribe today.
The main reason for the region’s economic decline is the collapse of commodity prices, which South America depends for much of its exports income.
Although neither the IMF nor the World Bank will put it in such blunt terms, many South American governments pilfered their commodity export bonanza of the past 15 years in a corruption-ridden populist fiesta that has left much of the region bankrupt.
Now, we are likely to see two Latin Americas: an economically depressed South America, hurt by China’s economic slowdown and falling commodity prices, and a somewhat better-off Mexico and Central America, which will benefit from the their close ties to a moderately healthy U.S. economy.
Overall, Latin America’s economy is expected to contract between 0.3 percent and 0.7 percent in 2016. Much of this figure will be influenced by Brazil and Venezuela’s economic debacles, the two institutions say.
The worst performing economy in the region will be Venezuela’s, which is expected to suffer a new economic contraction of between 7 percent and 8 percent this year, with a 700 percent annual inflation rate.
“As long as there’s no change in Venezuela’s economic model, the economy will keep falling,” Alejandro Werner, the IMF’s chief economist for Latin America, told me.
Brazil, the biggest country in the region, is projected to see its economy contract by between 3.6 and 4 percent, much like in 2015.
Brazil’s economic crisis stems from massive corruption charges against President Dilma Rousseff’s government, which have paralyzed the economy.
Argentina, where new President Mauricio Macri vows to reverse his predecessor’s disastrous economic policies, will see its economy fall by between 0.6 percent and 1.2 percent in 2016. But Argentina is likely to start recovering by the end of this year, the IMF says.
“By 2017, we expect Argentina to show significant growth,” Werner told me. “This is because you will see an increase of investments with the return of a climate of economic certainty.”
Chile, Peru and Colombia are expected to grow at between 3 percent and 4 percent rates, while Ecuador will see a steep decline because of its excessive dependence on oil exports. “Ecuador is the country where we will see the biggest [negative] change this year,” Werner said.
Augusto de la Torre, the World Bank’s chief economist for Latin America, told me that the best-performing economies in 2016 will be Panama, which is expected to grow by 5.9 percent (although these projections were calculated before the Panama Papers scandal over shell companies in that country) the Dominican Republic, which will grow by 4.9 percent, and Nicaragua, Costa Rica and Guatemala, which will grow by between 3 and 4 percent.
My opinion: Despite the bleak forecasts for the near future, I’m somewhat hopeful that things will change for the better as early as next year, because political winds are changing in the region. The populist cycle is coming to an end, because there can’t be populism without money to spread around.
There is already a new president in Argentina who wants to draw domestic and foreign investment, and growing opposition to populist governments in Venezuela, Bolivia, Ecuador and, most importantly, Brazil.
We may soon see a very different Latin America, ruled by presidents who understand that without investment there is no growth, and without growth there is no reduction of poverty.
A region that welcomes investments would become a magnet for new money, and would make the current recession much shorter. Sounds optimistic, but it could happen sooner than many expect.
Watch the “Oppenheimer Presenta” tv show Sundays at 9 p.m. on CNN en Español. Twitter: @oppenheimera
Watch “Oppenheimer Presenta” Sundays at 9 p.m. on CNN en Español