How to Revive Latin America's Struggling Economy

In recent years, Latin America has proven to be one of the most disappointing regions in terms of economic performance.  Given the fact that, just a few years ago the region was recording some of the world’s highest rates of economic growth, the recent run of poor economic results has been particularly disappointing.  Moreover, it is the region’s largest and once-wealthiest economies that are proving to be the greatest drag on growth for the region.  Looking ahead, the once-promising outlook for the Latin American economy has soured due to a range of external and internal factors that will take a number of major reforms to overcome.  Without these reforms, Latin America will continue to disappoint in the years and decades ahead.

In 2010 and 2011, the Latin American economy grew by an average of 5.5%, one of the highest growth rates in the world during that period.  This allowed Latin America to close the growth gap with Asia’s leading emerging markets and raised hopes that the region could emulate the high rates of growth achieved in China and a number of other Asian emerging markets.  However, since 2012, Latin America’s economic growth rates have fallen sharply, falling to just 1.3% in 2014.  Moreover, it is likely that the region’s overall economic growth rate will fall to less than 1.0% this year.  This recent downturn is the result of lower demand from China for Latin American resources as well as the overall poor performance of the region’s leading economies (Brazil, Mexico, Argentina and Venezuela). 

A number of key weaknesses have prevented Latin America from being able to match the sustained high rates of economic growth that have been recorded in China and other Asian emerging markets.  First, the region’s domestic market has failed to achieve significant rates of growth, leaving most of the region’s economies dependent upon exports.  However, Latin America’s export competitiveness remains well below that of Asia’s leading emerging markets, largely as a result of the region’s poor infrastructure and its low levels of productivity.  Moreover, too many of the region’s economies have failed to diversify their economies away from just a handful of commodities, leaving them exposed to fluctuations in demand and price levels for these commodities.  Finally, the region has been plagued by a number of governments that have severely mismanaged their economies in recent years, harming their ability to grow in a challenging international environment.

For Latin America to revive its economy and become more competitive with Asia’s leading emerging markets, a number of major reforms will have to be enacted.  First, the region’s governments must enact policies that attract more foreign investment that can be used to diversify the region’s economies, while improving the outlook for the region’s existing natural resource sectors.  Second, governments across the region must dramatically increase spending on infrastructure and education, as this will boost the region’s export competitiveness while fostering the development of local businesses.  Finally, more must be done to reduce the levels of corruption and crime that continue to plague most countries in the region, for this has been one of the greatest hindrances to the region’s economic development.  Without these three crucial reforms being implemented, there is little chance that Latin America will be able to grow at the rate of Asia’s more successful emerging markets.