For decades, Latin America has been riven by a bitter and often destructive tug of war over economic policy, which has pitted “neoliberals” favouring free markets against big-government statists.
One side would pull voters their way; four years later, the electorate would swing in the opposite direction and the rival team would sweep to victory. Their first act in office would be to undo as quickly as possible the work of the previous incumbents.
In Argentina, for example, Cristina Fernández de Kirchner’s Peronist government imposed price controls, raised taxes and nationalised the local oil company in 2007-15. Then, Mauricio Macri, a free-market-minded businessman, won power. He deregulated and rolled back the state, only to lose to the Peronists in 2019, who promptly reintroduced price controls and tax rises.
In Mexico, one of the first acts of leftist President Andrés Manuel López Obrador on taking power in 2018 was to scrap a one-third built (and sorely needed) new airport for Mexico City, a project started by his predecessor, Enrique Peña Nieto. Now, he is also battling to reverse Peña Nieto’s energy reforms, which allowed private sector investment in renewables and some oilfields, and aiming to restore state oil company Pemex’s pre-eminence.
Absent has been the consensus reached in some of the world’s most economically successful regions, such as south-east Asia, on the need to invest in quality education and infrastructure over an extended period and to develop internationally competitive export industries.
But, amid the devastation wrought by coronavirus, there is now a remarkable degree of agreement among experts over what policies should be followed in Latin America, the region hit hardest by the health and economic crises of Covid-19.
The key is to “build back better” — shorthand used by everyone from the World Bank to academics to mean seizing the opportunity created by the pandemic to make the region’s economies more competitive, inclusive and sustainable.
That involves embracing the opportunities opened up by faster digitalisation to improve everything from education to health services to government, and using the transition to greener energy to invest in infrastructure that delivers better public services more cheaply.
The private sector is already rising to the challenge. Argentina’s fintech challenger Ualá, for example, offers digital banking services to millions who were previously unbanked. Brazil’s Dr Consulta allows workers on modest incomes to access high-quality, low-cost medical services simply and quickly. And ecommerce giant MercadoLibre has built a huge logistics network to deliver online purchases throughout Latin America.
These, and dozens of other start-ups featured on the latest FT-Statista ranking of The Americas’ fastest-growing companies, are making the region’s economies work better for all.
However, the World Bank — along with other international institutions, such as the Inter-American Development Bank (IDB) — points out that Latin America was suffering from numerous “pre-existing conditions” even before the pandemic: low growth, high inequality, and a lack of global competitiveness. Returning to the status quo is not an option.
Even the IMF, once the guardian of economic orthodoxy, these days advocates the need for extra borrowing to alleviate the social impact of the pandemic, and restructuring existing debt loads to make them more sustainable.
Given the extent of agreement over the policies to follow, the question is simply whether Latin Americans will elect governments willing to enact them.
Peru and Chile elect presidents later this year, while Mexico and Argentina hold midterm legislative elections. Next year, Brazil and Colombia choose new leaders.
Eric Parrado Herrera, chief economist at the IDB, says “we need to avoid populism and short-termism” in the upcoming wave of Latin American elections. “It’s important to have national consensus to have a long-term view of the reforms we need,” he adds.
But the omens so far have not been good.
The two largest countries in the region — Brazil and Mexico — are already governed by populists.
In Argentina, Cristina Fernández de Kirchner is back in office for a third term, this time as a powerful vice-president. She is pushing hard for price controls, subsidies for public services and a deferral of debt talks with the IMF.
In Peru, a far-left primary school teacher, Pedro Castillo, won the first round of the presidential election this month in an upset result, and will face a conservative populist, Keiko Fujimori, in the second round. Chilean populists are also doing well. Only Ecuador has bucked this trend, choosing a pragmatic former banker as president, over a leftist populist.
With that exception, it is not easy to find candidates advocating the kind of long-term “build back better” policies topping opinion polls. Parrado, however, remains optimistic that populism’s appeal will not last.
“Populism is just not sustainable,” he says. “You can fool people once but not twice, not three times.”