Doubts come to surface about ‘the decade of Latin America’

LAC has been experiencing a golden decade of economic growth since the beginning of the millenium – often due to its booming commodity export industries. The IMF estimates that these industries saw an average annual growth of 15% per year during that period of time accounting nowadays again for half of South American exports for example.

Mining Chile

But attention! Dark clouds may raise with a possible slugging global demand and the ‘Dutch disease’. Especially the latter – the Dutch disease – should seem familiar to us not least because the LAC region has suffered from it for centuries. The commodity boom leads to abundant capital inflows, appreciate the currencies and lowers the innternational competitivity of local manufacturers. With this, the economy remains based on commodity exports instead of broadening its portfolio to high-end products until… well, until the commodity export suffers from its global volatility again.

Especially the ‘green giant’ seems running the risk, but also Argentina and Venezuela. The commodity industry shares in their exports have been growing rapidly without a noteworthy increase of competetiveness of other industries. This, according to an article published by the FT, could be “(…) why Mexico, less dominated by commodities and exporting more manufactured goods than the rest of Latin America combined, is lately an investor favourite.” It further continues listing Colombia, Chile and Peru as reform-minded countries with higher chances to reach economic growth in the next few years.

 

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