During the beginning of the twenty-first century, Latin America experienced an unprecedented period of economic growth and social development. Al Jazeera explains that what took place was “the building of a democratic culture, respect for the rule of law, economic independence and a redistribution of wealth.”
However, there has been a reversal in political culture in recent times, with political defeats in Bolivia, Argentina and Ecuador, demonstrations and parliamentary opposition in Venezuela, the far-right victory in Brazil and waning momentum in Cuba’s revolution. According to the International Monetary Fund, as a consequence of this dramatic redistribution of political power, economic activity in Latin America stagnated in 2019, a definitive divergence from the success of the region between 2000 and 2013. Elevated economic policy uncertainty and social unrest related to the shifting political dynamics in the region have slowed economic growth.
Elevated economic policy uncertainty is most evident in Mexico, specifically uncertainty about the current course of economic policy and reforms, most likely contributing to the slowdown in GDP and investment growth in 2019. Mexico’s economy has been on the brink of stagnation throughout 2019 and will continue to be in 2020, expanding at just 1.1%, according to a median estimate provided by Reuters. If the United States were to devolve further into protectionist policy, especially during the 2020 presidential campaign, this could stifle any chance of a nascent revival.
Multiple states in the region have experienced social unrest, including Bolivia, Colombia, Chile, and Ecuador, which has disrupted economic activity. Here, I will look specifically at Chile and Venezuela. The economic outlook in Chile is subject to uncertainty resulting from social unrest and the evolving policy responses to the social demands. Chile has been in the grips of a social revolt that has pushed the economy to the edge of recession. In a statement, policymakers said that the impact of the protests on the economy eased in December, but that the outlook for growth remains weak. The narrative in Venezuela is somewhat bleaker; it remains immersed in a deep economic and humanitarian crisis. Real GDP has decreased by 65 percent driven by declining oil production, hyperinflation, collapsing public services, and plummeting purchasing power.
According to a report by the International Monetary Fund, in order to implement effective policy, governments will need to “strike a balance between rebuilding policy space and maintaining economic stability on the one hand and supporting economic activity and strengthening the social safety net on the other hand.” The priority must be to reignite growth in the region, while making it more inclusive then years gone by.
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