London focuses on Latin America

brasilobserver - Mar 16 2015

(Leia em Português)

By Guilherme Reis

Some can argue that Latin America no longer attracts as much international attention as before. After a decade of economic growth (boosted mainly by the boom in the raw materials market), some economies in the region are facing the risk of stagnation. Therefore, international investors are wondering: is it worth being there?

First point, is to understand exactly which Latin America we are talking about. There seems to be a consensus that, in each of the region’s countries, there exists at least two different countries. Not only because of their cultural diversity, but mainly the social inequality that causes deep societal divisions that can be bad for local people – and also for international investors.

Were Latin America a more homogeneous, integrated and aligned in relation to political and economic strategies, surely the task of understanding and participating in regional development would be easier. But in the same way that, when you create an atmosphere of excitement, many problems are hidden, opportunities also become more difficult to be captured and utilised when the reality is so divided. In an environment where very often perception is worth more than reality, what is real is not seen.

In this sense, two events held in February in London, with completely different approaches, set out to foster a more comprehensive understanding of what is happening in Latin America.

The first, held by the Institute of Latin American Studies of the University of London, tried to analyse the ten years of the Bolivarian Alliance for the Americas (ALBA), established in 2004 by the then presidents Hugo Chavez of Venezuela and Fidel Castro of Cuba. Currently with 11 members (Brazil is not one of them) the intergovernmental organisation was born under the ideal of building the 21st Century Socialism, opposing the Free Trade Area of ​​the Americas (FTAA). Its actions are aimed at increasing economic, political and social integration of the region through the concepts of solidarity, cooperation and complementarity between the nations.

Of the experiences presented at the conference, two stood out. One regarding the Sucre, the common virtual currency of ALBA, and the other on the attempts to build a Communal Economic System.

For Stephanie Pearce, a doctoral candidate at Queen Mary College, University of London, although the complementary currency has been created to reduce the influence of the dollar in the region and eliminate the financial costs of economic transactions between the ALBA countries, “Sucre has not reached its full potential,” being used almost exclusively between Venezuela and Ecuador.

After pointing out the positive aspects that she witnessed in Venezuela with the operation of the Social Production Enterprises and Family Production Units, Helen Yaffe, of the University of Leicester, a questioned the transition to socialism in a context of economic dependence. For her, “the Bolivarian government avoided conflict with the capitalist elite” and failed in the conduct of public spending not diversifying national production.

This point was also emphasised by Jose Manuel Pontes, from the University of Oxford, for whom the ALBA will only continue to develop if not more dependent on Venezuela, which has always been the great financier of the group, but now faces an economic crisis made worse by the falling rice of oil.

The second event also dealt with the economic development in Latin America, but from a more liberal perspective. Organised by the London Business School, the tenth edition of the Latin American Business Forum revolved around two main panels, one on competitiveness and the other, looking at the polarisation between free market and state control and looking for a  possible middle ground for countries in the region to achieve equitable growth.

In general, everyone seemed to agree that Latin American countries need to become more efficient in public spending, reducing corruption, increasing the percentage of investment to GDP and focus on infrastructure and education, so that there is a relevant impact on productivity.

“Productivity in Latin America was 20% in the 1960s and 1970s in comparison with the developed countries. Today it is 40% to 50%,” said the Head Economist of Patria Investment, Luis Fernando Lopes. “The more the country grows, the more productive it is,” he added.

Leonardo Uehara, Managing Partner of management consultants Visagio, pointed out the need to modernise labour laws in Brazil. “Today every state has its own regulations. How can a company expand?”. Uehara said that “if Brazil wants to be competitive, its companies must to invest abroad.” For him, Brazilian companies have great a advantage in other emerging markets: “we understand better.”

Wenceslao Bunge, Managing Director at Credit Suisse, said that “the only way to be competitive exporting raw material is by reducing the cost of production”, adding value to the application of technological resources. On the effects of corruption, Bunge argued that “when the institutions are more important than people, the country has the means to achieve economic success.”

In the second panel, there were a lot of talks about the role of the private sector in the Latin American economy. Alejandro Puente, Chief Relationship Officer at Banco Comportamos, said the region offered “many opportunities because there are many needs.” And that “free trade agreements are good starting points, but not enough.”

A similar view was shared by Francisco Gordillo Pírez, Ambassador of Uruguay in the World Trade Organisation, for whom “before the agreement, we must do the homework”, otherwise the national economy can be severely hampered.

Before closing the forum, the former Uruguayan President Luis Lacalle Herrera addressed the audience. He recalled the creation of Mercosur in the early 1990s, and said he no longer recognised the organisation because it had lost focus of free trade and now has political objectives. Herrera said he thinks an agreement between Mercosur and the European Union is unlikely, showing more sympathetic to a pact between Latin American countries and the United States.

Overcoming the alleged dichotomy of the “free market vs. state control” is the great challenge of almost all Latin American countries. Something so naive as to believe that one of these ideologies, alone, can lead Latin America to the full development.