Bolivia’s Ex-Finance Minister Says Days of Economic ‘Bonanza’ in Latin America are Over

In recent years, the public has mainly heard of high-profile political crises in Latin America: a series of corruption scandals and resignations in Brazil, the dramatic fate of former President of Ecuador Rafael Correa after his successor Lenin Moreno came to power, and the domestic political crisis in Venezuela.

© AP Photo/ Leonardo Fernandez

Sputnik has spoken about the situation in Latin America with Excellency Jemio Luis Carlos, economist, senior fellow INESAD, former Minister of Finance of Bolivia and senior economist to the Development Bank of Latin America.

Sputnik: Can we call this a common continental trend? Are there any general reasons for this political picture in Latin America?

Jemio Luis Carlos: There are some common aspects to all Latin American countries that explain the political crisis observed recently, but there are also very specific particularities for every country. Among the common aspects, we can mention the economic deceleration that’s occurred in recent years, corruption scandals, the existence of authoritarian regimes, and increasing inequalities.

During the 2000s, many Latin American countries enjoyed a period of economic bonanza, owing to high prices of commodities exported by the region (energy, minerals, and food). This brought about a prolonged period of high economic growth, and large exports, and fiscal revenues. Governments around the region, independently of their political orientation, enjoyed a large availability of fiscal resources, used to increase public investment.

During this period, economies in Latin America showed increased growth rates, reduced unemployment, and poverty, which brought about the emergence of a large new middle-class segment. Starting from 2015, however, the commodity bonanza seems to have finished, and governments around the region had to adjust their economies to new, less favourable conditions.

People are feeling the effects of the crisis, and are pressing governments to maintain economic growth with expansive economic policies. This has become a goal that is difficult to attain, given the new economic scenery. Thus, governments have become increasingly unpopular, such as Macri in Argentina, Bolsonaro in Brazil, and Moreno in Ecuador.

Besides this, corruption is another factor that has greatly affected governments’ popularity. Governments that were in power during the bonanza years, enjoyed popularity and were repeatedly re-elected in continuous elections.

However, the large availability of fiscal resources and the permanence in power of these governments for prolonged periods were accompanied by notorious corruption scandals, the most notable being the bribes paid by the Brazilian infrastructure company Odebrecht to high-ranking government officials and politicians in Brazil, Argentina, Peru, Colombia, and Ecuador. This factor has also increased the distrust of people in politicians and governments.

Sputnik: Bolivia is considered the most isolated territory in South America because of its unique geographical location. Nevertheless, can we say, that the political and economic trends of Latin America influenced Bolivia in recent years, taking into account the recent resignation of Bolivian President Evo Morales?

Jemio Luis Carlos: Bolivia is located in the heart of South America and has common borders with 5 countries: Brazil, Paraguay, Argentina, Chile, and Peru. Due to the reforms carried out during the 1990s, Bolivia discovered large reserves of natural gas and began exporting it to Brazil and Argentina. Bolivia became one of the main producers of this hydrocarbon in the region, with the potential to become an energy hub in South America.

However, the policies implemented after 2006, greatly discouraged private investment in this sector, and no new discoveries of natural gas reserves were made. Thus, Bolivia has greatly reduced its potential to become a major player in the energy sector in the region.

With the resignation of Evo Morales, the country needs to create the conditions to attract large amounts of private investment into this sector, and other exporting sectors of the economy. However, it might take several years before we can regain the trust of potential investors in the country, and make them decide to invest again.

Sputnik: Could you share your prognosis on how the political situation in Bolivia will unfold in the near future? What must be done to overcome the economic crisis?

Jemio Luis Carlos: After enjoying a long period of economic bonanza, the Bolivian economy is faced with a much smaller availability of resources in the post-bonanza period (2015-2019). As a result, the economy has developed large external and fiscal deficits.

Besides this, reserves in the mining and hydrocarbon sectors, are falling very rapidly due to the lack of new investments, and thus the economy is losing the export potential in two sectors which were paramount during the past export bonanza. Thus, the new government will have to deal with a far less favourable economic situation. A significant fiscal adjustment is needed in order to stop the fast drain of the Central Bank’s international reserves. Adjustment is always a very unpopular policy and has a large political cost.

Sputnik: Can we say that Latin American countries are gradually moving away from the leftist trend?  If so, what are the reasons?

Jemio Luis Carlos: Governments in the region have shifted between left- and right-wing ideologies. Thus, there is not a definite pattern. We cannot say that governments are definitely moving to the left-wing or to the right-wing of the political spectrum. Argentina, for instance, will again have a left-wing government with Fernandez, after having Macri, who is a right-wing president. The same with Brazil, where there is Bolsonaro, who is a right-wing president, after having Lula and Dilma Russeff, who were left-wing presidents.

Potentially, Lula could be elected president in the next election. Chile, which has a right-wing president at the moment, previously had Michele Bachelet, who was a socialist president. Governments in most countries have moved from the left- to the right-wing and back. I myself consider this pattern very positive for these countries’ political systems and their democracies.

However, there are exceptions, like Venezuela, Nicaragua, and Cuba (Bolivia was on its way to becoming part of this group), where there are governments that want to stay in power forever, using any means, legal or illegal, and have become in practice true dictatorships. Thus, the main issue of the Latin American political struggle at present is not one referred to the election of left- or right-wing governments, but to the alternative of having a democracy or an authoritarian dictatorship.

Sputnik: A decade ago, Latin American countries delighted the world with an unprecedented rate of economic growth, becoming coveted trade and economic partners for the rest of the world. However, experts agree that the previous model of economic growth has exhausted itself. What will the new economic model of Latin America look like? How will it be built?

Jemio Luis Carlos: As discussed in question one, Latin American countries enjoyed a long period of economic bonanza, based on high prices of commodity exports, fuelled by very high growth rates of the Chinese economy. In recent years, the world economy’s growth has slowed down, partly because of the trade war between the USA and China.

This has brought about a drop in commodity prices, which has affected the performance of the Latin American economies. The commodity bonanza has benefited the economies in the region, which showed great dynamics while the bonanza lasted. However, the bonanza has also made the Latin American economies much more dependent on commodity exports and has reduced the weight of manufacturing goods in total exports. During the post-bonanza period, lower prices have resulted in slower economic growth, increased unemployment, and large deficits.

A new economic model for Latin America should seek greater economic integration within the regional economies, but also with other regions in the world. Policymakers should seek to implement policies aimed at diversifying the economies, in order to reduce their dependence on low value-added commodities.

Sputnik: What steps can the countries of Latin America take to overcome the crisis of mistrust that has developed in recent years?

Jemio Luis Carlos: I believe that the economic bonanza lived in Latin America over the last decade and a half, has helped a large share of the population to improve their living standards. Many people in the region have left poverty and have managed to attain higher living standards, in terms of access to basic needs satisfaction, housing, health, and education services, and other goods and services.

With the deceleration of the economy due to the end of the commodity super-cycle, many of these families see that those gains could be reversed, and are pressing governments to maintain economic growth. This option is, however, becoming increasingly difficult for governments to do, given the shortages of public revenues.

Sputnik: Experts are increasingly saying that in Latin America, months of change are approaching with regard to investment inflows. What is your prognosis regarding investments in Latin America? Who will invest and what area will see the most investment?

Jemio Luis Carlos: Latin America has lots of potential to increase and diversify its exports in the future. To materialise this potential, Latin American countries need to diversify their economies, in order to reduce their dependency on low-value-added commodity exports. For this purpose, they should seek greater integration with all economic regions, including the USA, EU, Asia-Pacific, etc.

Besides this, the region should create the conditions to improve their investment climates, in order to attract greater foreign investment flows, as well as domestic private investment. A better investment climate needs to guarantee judicial security, the stability of the rules of the game to private investors, in areas regarding labour, taxes, and regulatory frameworks.

Governments should invest in areas regarding the provision of infrastructure, and basic services, such as education, health, etc., and guarantee access to those services to all segments of the population.

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