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Postado dia 09/10/2023 às 14:23:00

The Four ‘Syndromes’ Behind Latin America’s Economic Stagnation

Last week I interviewed three prominent Latin American economists, two of them former chiefs of the central banks of Brazil and Mexico and one a former finance minister of Chile. The topic: Latin America’s frustratingly slow economic growth. I sensed their pain over the lack of progress in their home countries and the region as a whole.

“For Brazil, the country I know best, I find the comparison with Korea most striking,” Arminio Fraga, who was the president of Brazil’s central bank from 1999 to 2002 and now works at Rio de Janeiro-based Gávea Investimentos, which he co-founded, told me. “If you go back 80 years, the two countries had equally low income per capita and educational levels. Korea made it and we didn’t.”

Guillermo Ortiz, who was the governor of Mexico’s central bank from 1998 to 2009 and is now a senior adviser and board member of the investment bank BTG Pactual, called Mexico’s economic struggles “perplexing.” “There is an open economy,” he said. “A sophisticated manufacturing base that’s fed by nearshoring by the United States. There’s an investment boom in the north. Yet the economic performance of Mexico has been very mediocre.”

Across Latin America, “The voters come to think that the politicians are crooks because they don’t deliver on their promises,” said Andrés Velasco, a former finance minister of Chile who is dean of the School of Public Policy at the London School of Economics and Political Science. “It’s not because they’re crooks. It’s because they don’t have the votes.”


Fraga and Ortiz led a Group of Thirty working group on Latin America that issued a report this month titled “Why Does Latin America Underperform?” The G30, as it’s known, is a body of central bankers, commercial bankers and academics that was founded in 1978. Velasco was the report’s project director.

The authors compared themselves to a doctor diagnosing a patient. There is no cure-all, they wrote, because every country is different. But they did manage to identify four “low-growth syndromes” affecting various countries.

The first syndrome, endemic macroeconomic instability, affects Argentina, Ecuador and Venezuela, the diagnosticians wrote. The second syndrome affects a stronger set of countries: Chile, Colombia, Peru and Uruguay. Those countries are relatively stable but suffer from “market and government failures, as well as a scarcity of high-return private investment projects.” Mexico suffers from the third syndrome: “productivity misallocation, regional disparities, narcoviolence, and institutional deterioration.” Brazil suffers from the fourth: “endemic budget deficits, high real interest rates and low national savings” combined with “political challenges, including inequality, populism and polarization.”

The result of the four maladies is that Latin America has experienced slower growth than a group of countries with similar per capita incomes that the authors identified as peers: Bulgaria, the Czech Republic, Egypt, Hungary, Indonesia, Malaysia, the Philippines, Poland, Romania, South Africa, Thailand and Turkey.

Poor governance is a widespread problem. The report pointed out that Latin America is unique in that many nations in the region combine presidential governance (rather than parliamentary governance, as in Britain) with a proportional election system (rather than a majoritarian electoral system, as in the United States). The result is that presidents stay in office regardless of whether they have a working majority in the legislature — and they often don’t because of the allocation of seats based on party vote totals. That explains the ineffectiveness of politicians that Velasco pinpointed.


I was less persuaded by the solutions section of the report. That’s a common problem, of course; it’s always easier to identify a problem than to figure out how to fix it. (Ask me about our washing machine.)


An “alternative path,” the report said, “involves skillful political entrepreneurs who assemble coalitions and gather support for key political reforms, including the strengthening of political parties and updating electoral rules to ensure governments will be able to secure the majorities needed to govern.”

For Argentina and other countries with chaotic public finances, restoring macroeconomic stability must come before all other priorities, Velasco said in a summary of the report. In his view, Chile and others of its ilk can afford to focus on growth strategies. Mexico is “complicated” but needs to work on security, strengthen the rule of law and invest in its southern states, which lag economically. And Brazil “is probably the most difficult case.” One answer, Velasco said, is lowering chronic government budget deficits, which keep interest rates high and discourage private-sector investment.

If governments were able to deliver on their campaign promises, voters would regain trust in them, the report said. At that point, “large-scale political bargains are imaginable.” One bargain: a stronger social safety net in exchange for “investor-friendly reforms.”

“In this scenario, little by little, trust would be rebuilt and political capital accumulated of the kind needed to undertake additional politically difficult, growth-enhancing, and public service-improving reforms,” the report continued. “That would constitute a social and political virtuous circle.”


It’s a nice vision but hard to achieve, judging from past decades’ performance.

Coincidentally, the Inter-American Development Bank, which lends money for projects in Latin America and the Caribbean, this month announced an effort to get more American companies to bid on the projects that the bank finances. “If Bolivia puts out a bid, we can’t assume the whole world is equally knowledgeable” about the opportunity, Jordan Schwartz, the bank’s executive vice president, told me. The bank also wants more private lending to supplement that from official sources. More participation by American companies in trade and investment would strengthen Washington’s support for the bank and help the region as well.

I think one reason for American companies’ hesitancy to go big in Latin America is precisely the history of slow growth identified in the G30 report. Fraga told me he sees the region stuck in a trap: Bad schools decrease the public’s trust in and support for the education system, which makes the schools worse. Same with other functions of government. “We’re going nowhere,” Fraga said. “We’re easy prey for populism, state capture by special interest groups.”

The G30 report does make one hopeful point about the political system. Only two countries, Venezuela and Nicaragua, have fully lost their democracies. Brazil shook off an attack on government buildings by followers of the outgoing president, Jair Bolsonaro. The Peruvian president who tried to shut down the legislature in 2022 was removed by it. Argentina, for all its problems, “does have judges who can indict powerful government officials,” the report also notes.

That’s a foundation to build on. “There are still strengths in society,” Ortiz told me. “Although the surveys point to a loss of confidence in institutions, still they are functioning.”

Opinion, by Peter Coy

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