Latin economies racing forward as others creep

LIMA, Peru – While the United
States and Europe fret over huge deficits and threats to a fragile recovery,
this region has a
surprise in store. Latin America, beset in the past by debt defaults, currency
devaluations and the need for bailouts from rich countries, is experiencing
robust economic growth that is the envy of its northern counterparts.

Strong
demand in Asia for commodities like iron ore, tin and gold, combined with
policies in several Latin American economies that help control deficits and
keep inflation low, are encouraging investment and fuelling much of the growth.
The World Bank forecasts that the region’s economy will grow 4.5 percent this
year.

Recent
growth spurts around Latin America have surpassed the expectations of many
governments themselves. Brazil, the region’s rising power, is leading the
regional recovery from the downturn of 2009, growing 9 percent in the first
quarter from the same period last year. Brazil’s central bank said Wednesday
that growth for 2010 could reach 7.3 percent, the nation’s fastest expansion in
24 years.

After
a sharp contraction last year, Mexico’s economy grew 4.3 percent in the first
quarter and may reach 5 percent this year, the Mexican government has said,
possibly outpacing the U.S. economy.

Smaller
countries are also growing fast. Here in Peru, where memories are still raw of
an economy in tatters from hyperinflation and a brutal, two-decade war against
Maoist rebels that left almost 70,000 people dead, gross domestic product
surged 9.3 percent in April from the same month of last year.

Los
Olivos offers a glimpse into the growth lifting parts of Latin America out of
poverty. Even small countries have adopted pragmatic policies and are faring
well. While Europe was gripped by fears of contagion from Greece’s debt crisis,
the credit rating agency Standard & Poor’s upgraded Bolivia in May, citing
its sound public finances.
Latin America’s growth largely reflects a deepening engagement with Asia, where
China and other countries are also growing fast. China surpassed the United
States last year as Brazil’s top trading partner and is the second largest
trading partner in countries like Venezuela and Colombia, Washington’s top ally
in the region.

Some
scholars of Latin America’s economic history of ups and downs say the robust
recovery may be too good to last, pointing to volatile politics in some places,
excessive reliance on commodity exports and the risks of sharply increasing
trade with China.

Michael
Pettis, a specialist at Peking University in Beijing on China’s financial links
with developing countries, said the region was especially exposed to Chinese
policies that had driven up global demand for commodities, including what
appears to be Chinese stockpiling of commodities.

Other
economists, including Nicolas Eyzaguirre, director of the Western Hemisphere
department of the International Monetary Fund, suggest that low international
interest rates, another factor supporting Latin America’s growth, will not last
much longer. Even so, they applaud home-grown policies that are supporting
growth.

Chile,
for instance, saved revenues from copper exports when commodities prices
climbed, allowing it to enact a stimulus plan last year and rebound from the
February earthquake. Chile’s economy grew 8.2 percent in April from the
previous month, its biggest increase since 1996.

Within
the fund itself, Latin America’s recovery is translating into new political
sway, particularly for Brazil, which has paid its debt to the fund and is
seeking to enhance its voting stake in it. As Brazil posts China-level growth,
President Luiz Inacio Lula da Silva is nurturing soft-power ambitions, with
ventures like a state television station that will broadcast to African
nations.

Peru,
whose economic growth is expected to rival or outstrip Brazil’s over the next
several years, exemplifies the challenges remaining in a sizzling economy.
The country boasts nimble companies like Ajegroup,
founded during the chaos of the 1980s. Now the company’s soft drinks compete
with giants like Coca-Cola, not just in Peru but in other Latin American
countries as well.

Foreign
investment has flowed into Peru, largely in mining. But this investment reveals
both weaknesses and strengths. Mining accounts for about 8 percent of economic
activity but about half of tax revenues, creating problems if commodities
prices fall.

But some of what
glitters in Peru’s boom seems to be paving the way for lasting prosperity.
Felipe Castillo, 60, mayor of Los Olivos, is investing tax proceeds in a new
low-tuition municipal university for 4,000 students. He gazed recently at the
11-storey structure, in a slum that has begun to take on the trappings of a
lower-middle-class district.
“Maybe the students at this institution,” he said, “will look at the mistakes
of our economic policy in the past as the tragic features of a bygone era.”

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