The Americas

Latin drift

Nov 19th 2008
From The World in 2009 print edition
By Michael Reid

Sorting Latin America’s pragmatists from its populists

Alamy 

After five years in which Latin America’s economies have averaged 5% annual growth with generally low inflation, they face a severe test of their new-found resilience in 2009. Subdued consumption in the rich world will squeeze exports and commodity prices, and finance will be harder to find. Countries with diversified exports and sound policies will be better placed to ride out the storm than those, such as Venezuela and Argentina, that have squandered their commodity windfalls and spurned private enterprise. Politically, tougher times will coincide with, and contribute to, the start of a tentative shift away from the left.

Of the region’s two big economies, Brazil will continue to do better than Mexico, but neither will do well. Softening commodity prices will erode Brazil’s trade surplus (and cause further depreciation of the real), but the diversity of its export markets and the vigour of domestic consumption will keep growth below 3% (down by more than two percentage points from 2008). With a presidential election due in 2010, Brazilian politics will be dominated by preliminary jockeying over candidacies, with President Luiz Inácio Lula da Silva, the social-democratic president, seeking to transfer his own popularity to his chosen successor, probably Dilma Rousseff, his chief of staff.

The intertwining of Mexico’s economy with United States’ manufacturing will cut growth to under 1%. That will bring an increase in social tension: tighter border controls mean it has become harder to cross into the United States, and jobs are harder to find there, so the traditional safety valve of emigration will become blocked. The slowdown comes at an awkward moment for Felipe Calderón, Mexico’s president. In a mid-term congressional election in July, Mr Calderón’s conservative National Action Party is unlikely to win the majority it desperately needs to sweep away the vestiges of corporatism that still hobble the country’s economy. The centrist Institutional Revolutionary Party, which ruled Mexico for seven decades until 2000, will make gains at the expense of the divided left. Whatever happens in the election, Mr Calderón will hope to make headway against powerful drug gangs.

Argentina’s vigorous recovery from its financial collapse of 2001-02 will peter out in 2009, as commodity prices soften. Cristina Fernández de Kirchner, the populist president, will pay a political price for her failure—and that of her husband and predecessor, Néstor Kirchner—to persuade investors that Argentina is a safe place to do business. Despite the government’s manipulation of the inflation index, Argentines know they are getting poorer. The Kirchners’ hold over the Congress and the ruling Peronist party will vanish in a legislative election in October. Rather than the divided opposition parties, Peronist barons of the centre-right may be the big winners. Ms Fernández will govern at their pleasure for the rest of her term until 2012—if she lasts that long.

In Venezuela the cost of Hugo Chávez’s rule will become clearer. Hitherto, a high and rising oil price has paid for ballooning imports and public spending, concealing the growing inefficiencies of the state-dominated economy. Unless oil, improbably, rises above $100 per barrel again, economic growth will slow to a crawl. Mr Chávez still has some room for manoeuvre: he has stashed away perhaps $15 billion in various development funds, and the central bank’s reserves stand at some $30 billion. But as oil dollars become less abundant, the government will tighten import controls and a devaluation may be unavoidable. That will mean a downward spiral of inflation, stagnation and poverty.

Facing the unravelling of his regime, Mr Chávez may become more radical: expect him to unearth more fictitious coup plots and to curtail political freedoms.

Divided they fall

The most closely watched Latin American election in 2009 will be in Chile, where the Concertación, the moderate centre-left coalition that has governed the country since the end of General Augusto Pinochet’s dictatorship in 1990, may lose power. For the first time, the Concertación will probably run two candidates. One would be from the Socialist Party—either Ricardo Lagos, a successful former president, or José Miguel Insulza, the secretary-general of the Organisation of American States. The Christian Democrats may run their own candidate, probably Eduardo Frei, another former president. That division would help Sebastián Piñera, a moderate conservative and successful businessman. He is likely to win the presidency narrowly in a run-off ballot.

Four smaller countries will also choose a new president in 2009. In Uruguay, the ruling centre-left Broad Front will win a second term, provided it unites around the candidacy of Danilo Astori, a moderate former finance minister. Similarly, in Panama the ruling centre-left Party of the Democratic Revolution should retain power. In El Salvador, the left-wing FMLN’s attempts to dislodge the conservative Arena party may founder. In both El Salvador and Honduras the elections may be dominated by attempts by Venezuela’s Mr Chávez to influence the result with money and offers of aid.

In Bolivia Evo Morales, the left-wing president, is likely to win a referendum to ratify a new constitution that “refounds” the country as an Amerindian socialist republic. But he will face continuing unrest in the more capitalist eastern provinces. Another of Latin America’s radical socialists, Ecuador’s Rafael Correa, will organise and win a fresh presidential election under a new constitution. In Colombia, the era of Álvaro Uribe will draw towards a close—assuming that he opts not to change the constitution to allow him to stand for a third consecutive term in 2010. The fastest growing of the larger economies in Latin America will once again be Peru, not least because its government will keep faith in free trade, rather than the socialism fashionable elsewhere.

Michael Reid: Americas editor, The Economist; author of “Forgotten Continent: The Battle for Latin America’s Soul” (Yale)

An economic superpower, and now oil too

From The Economist print edition

Oil could transform Brazil’s economy. But not necessarily for the better

THE legend is that Brazil never lives up to its vast potential. When Stefan Zweig, an exiled Austrian writer, said in 1941 of his new home that it was the “country of the future”, popular humour quickly added the rider “and it always will be”. More recently, when Goldman Sachs bracketed Brazil with Russia, India and China as the “BRIC” countries that collectively represent the world’s economic future, there was much muttering that its mediocre rate of economic growth condemned it to be an interloper in such dynamic company.

Yet there are reasons to believe that South America’s economic powerhouse of 190m people is starting to count in the world. Economic growth has risen steadily, to 5.4% last year. That is modest by Chinese standards—but the comparison is misleading. Brazil enjoyed Chinese rates of growth in the third quarter of the 20th century. That was when it was almost as poor as China. It is much harder for a middle-income country, as Brazil now is, to grow at such rates. And now it looks as if Brazil will become an oil power, too (see article).

Brazil’s previous growth spurt was derailed by debt and high oil prices, a debacle that obliged its then military government to give way to civilian rule. The early years of restored democracy saw chronic inflation, economic torpor and political drift. In the past decade and a half, however, under reforming democratic governments, Brazil has conquered inflation, opened a protected economy to the world and begun to tackle its social problems. Poverty and inequality are falling steadily. Under President Luiz Inácio Lula da Silva, the left came to power in 2002 and, to the surprise of some, maintained its commitment to economic stability and openness.

All this has gradually created a new mood among business people. Brazilian companies, traditionally inward-looking family-owned affairs, are going to the stockmarket to raise funds, in many cases to finance expansion abroad. Some, such as Vale, the world’s second-biggest mining company, and Embraer, its third-largest maker of civilian aircraft, both privatised in the 1990s, are well-known. A string of others are about to become so. Outsiders have caught the mood: foreign direct investment reached a record $34.6 billion last year.
Beware of bonanzas

Many of these companies are linked to agribusiness or other primary commodities. One reason to worry that Brazil is again flattering only to deceive is that it has been a huge beneficiary of high commodity prices—that same trend that is pushing up the cost of food around the world. Strip out this cyclical stimulus and the country’s performance would look less sprightly. But some economists argue that Brazil is the beneficiary of a structural shift, in which the industrialisation of Asia and the rise of a new middle class in the developing world will keep commodity prices high. Besides, Brazil produces more than just soyabeans. It has a lot of manufacturing industry too. And its newly discovered offshore fields of oil and natural gas may turn out to be bigger than those in the North Sea in the 1960s.

Oil wealth is lovely, of course. But it is also a cause for concern. Brazil’s currency, the real, has already soared to levels that make manufacturers wince. If it becomes a petro-currency, many factories will be forced to close unless the needlessly high costs of doing business in Brazil are slashed. Moreover, the most impressive economic achievements of Brazil as a democracy have tended to come when the government has had little room to manoeuvre.

The worry now is that a bonanza of oil will weaken an already infirm resolve to drill deeper into the economy’s structural problems. These difficulties include an oppressive tax system and a labour code that makes firms wary of hiring. Between them these have confined some 40% of the workforce to the informal economy. Though he needs to spend much more on infrastructure, Lula has squandered a chunk of record tax revenues on padding the public payroll.

An oil gusher could also sharpen Brazil’s already voracious appetite for the politics of the pork barrel. Lula has done much to make Brazil’s democracy more genuine. But he was re-elected in 2006 despite a corruption scandal that would have felled a politician of lesser skills. Since then he has basked in popularity derived from sunny economic times and well-designed social policies. The danger is complacency. Compared with its past, Brazil is indeed doing much better. But before oil euphoria kicks in, Brazil’s leaders should ask themselves why so many other countries have made bigger returns from a much smaller natural endowment.

From Economist.com

Forty years after the murder of Martin Luther King, is America any closer to realising his dreams?

MARTIN LUTHER KING dreamed of a day when his children would be judged not by skin colour but by character. Black America has moved far since his murder on April 4th 1968, at least on the political front. Four decades ago racists blew up churches and beat civil-rights marchers. Today, at least at the top, black America has found its voice: a black woman, Condoleezza Rice, is secretary of state, and a black man, Barack Obama, may capture the presidency in November.

In social and economic matters across the black population as a whole, however, blacks are still much worse off than whites. They endure far greater rates of poverty, crime and other social ills. Efforts to tackle these problems have produced dismal results, as opposing groups lay claim to King’s dream of colour-blindness.

Schooling shows some of the most intractable difficulties. Last year the Supreme Court declared unconstitutional plans by two school districts to assign students, according to race, to various schools (in an effort to balance the mix of races in classrooms). The court narrowly declared that the plans were against the constitution’s promise of equality before the law.

Yet few tools exist to tackle de facto educational resegregation. Aggressive federal intervention in the 1960s got black and white pupils to mix more. But by the 1980s white parents and conservative jurists had turned against controversial programmes such as the bussing of students to distant schools. Today blacks are again increasingly concentrated, if not legally segregated, into failing schools. Some 73% of black children study where over half the students are non-white, and 38% attend “intensely segregated” schools (over 90% non-white). Those schools get less funding and have less qualified teachers than average. In turn fewer blacks finish their studies. The most hopeful estimate—a 2006 report by the Economic Policy Institute—suggests that 74% of black students graduate. That is still ten percentage points below whites.

Another difficulty on the road to King’s colour-blind America concerns higher education. In 2006, the average white student scored 1063, out of 1600 on the Scholastic Aptitude Test, which is widely used for university admissions. The average black score was just 863. A 200-point gap usually means the difference between admission to an excellent university and a decent one, or between a decent one and a mediocre one.

The traditional remedy was “affirmative action”: various measures by universities to ensure higher rates of black enrolment. Here, too, jurisprudence has pushed back, most notably in a 2003 Supreme Court ruling, Gratz v Bollinger. The court found that universities may seek “diversity” in admissions, but the mechanistic system used by the University of Michigan, which gave points to students merely for being black, was unconstitutional. A simultaneous ruling on Michigan’s law-school admissions programme provided some ambiguity, when the court said that an “individualised, holistic” review of each application could consider race as a factor. Voters in Michigan responded by approving a 2006 ballot measure that banned affirmative action. The issue may now arise in the presidential campaign. A prominent (and black) opponent of affirmative action, Ward Connerly, is trying to get an initiative on the ballots of five states that would ban public institutions from considering race, sex or ethnicity when, for example, hiring staff.

Affirmative action—and other efforts—have certainly failed to rid America of sharp inequalities. Past oppression probably counts for much of the persistence of black poverty: in 1967, according to the census, the average black person had an income that was just 54% of the average white one. By 2005 the gap had only closed to 64%. And lingering prejudice makes life harder for many black job applicants. Social experiments have repeatedly shown that employers who are offered two otherwise identical résumés prefer one that carries a typically white name to one with a typically black name. Increasingly it is poorer and less educated black Americans who use “typically black” names, according to research by Steven Levitt, an economist at the University of Chicago.

With educational and economic opportunities skewed, no wonder that health and welfare indicators are too: the Justice Department estimates that one in three black men will go to jail at some point. An astounding 68% of blacks are overweight or obese, compared with (a still high) 58% of whites. Black people get cancer slightly more often than whites (despite smoking the same amount), and are more than twice as likely to be shot dead. Overall, black lives are five years shorter than white ones.

King is widely remembered as an inspirational speaker and moral leader. But John McWhorter of the Manhattan Institute concludes that his more mundane efforts may end up mattering as much: “I wish more people thought about the long, hard work he did behind the scenes on policy and negotiation.” Rows continue over the relative merits of race-blind policies and the need to level out America’s inequalities. Four decades after King’s death much remains to be done.

Kennedy Alencar

Uma semana em qualquer país é pouco tempo para conhecê-lo. Relatarei, portanto, impressões de uma viagem rápida à Índia, na qual a missão principal foi acompanhar a visita de três dias do presidente Luiz Inácio Lula da Silva ao país.

A descrição mais ouvida, especialmente de empresários e diplomatas brasileiros com alguma quilometragem de Índia: “Isto aqui é outro planeta”. Mais uma: “Não há comparação com o Brasil, a miséria aqui é muito maior”.

Ao final de uma semana, a primeira observação me pareceu equivocada. A segunda, exagerada.

Lula Marques/Folha Imagem

Indiano cuida de vacas próximo ao Taj Mahal

Chamar a Índia de outro planeta soa a provincianismo de parte da elite brasileira, tão “antenada” com os Estados Unidos e a Europa, tão certa da supremacia de seu modo de vida ocidental.

Berço de uma das civilizações mais antigas do mundo, a hindu, a Índia tem ainda forte influência das culturas islâmica e britânica. Em Goa, litoral oeste, há forte herança cultural da colonização portuguesa.

A Índia fica aqui no planeta Terra mesmo. Sua riqueza cultural é diversa, impressionante, forte. Das mais belas e ricas do mundo. Leia mais aqui

Kennedy Alencar, 39, é colunista da Folha Online e repórter especial da Folha em Brasília. Escreve para Pensata às sextas e para a coluna Brasília Online, sobre os bastidores da política federal, aos domingos.

E-mail: kalencar@folhasp.com.br

Photograph by Gary Knight

Gure Sarki, goat keeper, of Chaurmuni, Nepal.

TIMES MAGAZINE Tomorow

Published: June 10, 2007

The Arniko Highway climbs out of Kathmandu in long wending loops that pay twin tribute to the impassability of Himalayan terrain and the implausibility of its development. Outside Africa, no country is poorer than Nepal. Its per capita income looks like a misprint: $270 a year. Sudan’s is more than twice as high. Nearly two-thirds of Nepalis lack electricity. Half the preschoolers are malnourished. To the list of recent woes add regicide — 10 royals slaughtered in 2001 by a suicidal prince — and a Maoist insurgency.

With few resources of its own, Nepal relies on workers who have gone abroad for 12 percent of its G.D.P.

A few hours east of the city, a gravel road juts across a talc quarry, where the work would be disturbing enough even if the workers were not under five feet tall. Scores of young teenagers, barefoot and stunted, lug rocks from a lunar pit. The journey continues through a district capital flying Communist flags and ends, 12 hours after it began, above a forlorn canyon. Halfway down the cactus-lined slope, a destitute farmer named Gure Sarki recently bought four goats.

The story of Gure Sarki’s goats involves decades of thinking about foreign aid and the type of program often seen as modern practice at its best. Two years ago, an organizer appeared in the canyon to say that the Nepal government (with money from the World Bank) was making local grants for projects of poor villagers’ choosing. First villagers had to catalog their problems. With Sarki as chairman, Chaurmuni village made its list:

“Not able to eat for the whole year.”

“Not able to send children to school.”

“Lack of proper feed and fodder for the livestock.”

“Landslide and flood.”

“Not able to get the trust of the moneylender.”

“Insecurity and danger.”

A week later, they agreed to start a microcredit fund and expand their livestock herds. Twenty villagers would buy a total of 55 goats at $50 apiece. The plan specified who would serve on the goat-buying committee, the per diem the goat buyers would get and the interest rates on the loans (just over 1 percent). Those who were literate signed their names, while others inked fingerprints, and the papers went off to Kathmandu, where officials approved a $3,700 grant. Within two months of the first meeting, Sarki had his goats. They doubled the value of his livestock holdings. He prizes them so much that he sleeps beside them inside his house to protect them from leopards. He plans to sell them next year for a profit of about $25 each.

Lant Pritchett says he has a better idea. Pritchett, a development economist and practiced iconoclast, has just left the World Bank to teach at Harvard and to help Google plan its philanthropic efforts on global poverty. In a recent trip through Chaurmuni, he praised the goats as community-driven development at its best: a fast, flexible way of delivering tangible aid to the poor. “But Nepal isn’t going to goat its way out of poverty,” he said. Nor does he think that as a small, landlocked country Nepal can soon prosper through trade.

To those standard solutions, trade and aid, Pritchett would add a third: a big upset-the-applecart idea, equally offensive to the left and the right. He wants a giant guest-worker program that would put millions of the world’s poorest people to work in its richest economies. Never mind the goats; if you really want to help Gure Sarki, he says, let him cut your lawn. Pritchett’s nearly religious passion is reflected in the title of his migration manifesto: “Let Their People Come.” It was published last year to little acclaim — none at all, in fact — but that is Pritchett’s point. In a world in which rock stars fight for debt relief and students shun sweatshop apparel, he is vexed to find no placards raised for the cause of labor migration. If goods and money can travel, why can’t workers follow? What’s so special about borders? More…