What Future for Latin Amer...

What Future for Latin America?


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Panama has the potential to become 'Singapore for the Americas,’ says World Bank Chief Economist for Latin America & the Caribbean.
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New book asserts Latin America in danger of becoming "globally irrelevant." Natural resources and higher-tech exports seen as region's future niche in global economy. With high commodity prices, there is a chance to increase the path of modernization. Nations need to boost innovation to make the most of geographic advantages.
March 26, 2008 — Three years ago, Pulitzer Prize-winning author Andres Oppenheimer stirred a debate in South America with his book, Cuentos chinos (Tall Tales). It was a warning that the region’s commodities-based economic boom belies the fact Latin America is falling behind the rest of the developing world, especially Asia.
Worse, Latin America is in danger of becoming irrelevant globally in the next 20 years, argues Oppenheimer in the book’s new North American edition,Saving the Americas: The Dangerous Decline of Latin America and What the US Must Do.
Judging by the standing-room only crowd greeting the Miami Herald columnist recently at the World Bank’s bookstore, his assessment of the region resonates outside of Latin America.
On one hand the region’s economic vital signs seem reasonably strong, as even Oppenheimer agrees. Sales of oil, copper and other commodities are booming. Average economic growth is around 5 percent, with a few countries growing at much higher rates.
But, as Oppenheimer and others have noted, Latin America’s growth trails other developing regions. And its growth has failed to make the region more equitable. Latin America still suffers from big gaps between rich and poor even as faster-growing Asian countries like China and India dramatically cut poverty.
Instead of welcoming foreign and domestic investment, as Asian countries have been doing, Latin American countries have failed to fix problems, such as crime and a cumbersome business environment, that discourage both home-grown and foreign investors and businesses, says Oppenheimer, who visited 10 countries in Latin America, China, India, and Europe while researching the book.
Opportunity: Tomorrow’s Issue
“Latin America worries a lot about inequality. It should worry more about opportunity. The objective should not be equality but equity, leveling the playing field for the region’s citizens,” says Marcelo Giugale, Director of Economic Policy and Poverty Reduction Programs for the World Bank’s Latin America and Caribbean region.
“In our countries, it still matters too much what your family owns, what color your skin is, the education of your parents, or whether you were born in a city or in the countryside. Your circumstances prove more important than your effort. As we climb the ladder into post-middle-income status, public policy will be pushed by politics toward making circumstances less relevant.”
“Opportunity will be the next big issue, as governments build or fail to build institutions that open doors for all,” he says. “From early childhood development and access to micro-finance to property titling and personal security, our taxpayers will demand results that are meaningful to those that have been left behind for reasons that have nothing to do with their talents.
Most troubling, he adds, is Latin America’s stagnation in education, science, and technology.
“While Asians and Eastern Europeans are creating increasingly highly skilled labor forces, most Latin American countries have barely modified their outdated education systems,” he says.
‘Some Good Things Happening’
World Bank economists agree the region faces big challenges in the years ahead. The rise of China and India as major players in the world economy puts pressures on Latin America to adapt or be left behind. But the region’s outlook could also be brighter than envisioned in Saving the Americas.
“I’m a bit more optimistic,” says Augusto de la Torre, Chief Economist in the World Bank’s Latin America and Caribbean region. “When you look at the current signs you say, OK, this is not a pretty story yet, but you can see some good things happening.  The upside is certainly there.”
A2006 studyfound that China’s and India’s growing presence in the global economy may actually be helping Latin America. The two Asian giants are big buyers of Latin American commodities such as grains, industrial metals, oil and other sources of energy.
Though Latin America’s overall growth, at 5.1 percent in 2007, was slower than China’s  and India’s, some countries, such as Panama, Peru, Argentina and Colombia, have been growing at Asia-like rates for the last four or five years and are “beginning to show an economic dynamism that could lift trend growth,” says de la Torre.
He stressed that “the growth performance of the last five years has been underpinned by sounder fiscal and monetary policies.  The region is better prepared than in the past to resist external shocks.”
And for the first time in a generation, the region’s largest economy, Brazil, is benefiting from stable economic growth at 4.8 percent in 2007, a much lower inflation rate of about 4 percent and improvements in social well-being, such as a 97 percent school enrollment rate of children 7 to 14 years old, and a poverty rate that has fallen from 52 percent of the population in the 1990s to about 38 percent in 2005.
‘A Window of Opportunity to Close the Competitiveness Gap’
“Traditionally, there has been an inability to generate strong and sustained economic growth in the region, with the notable exception of Chile since the mid-19080s.  This may be changing now,” the Chief Economist says, and emphasizes that “some Latin countries seem to have taken advantage of the window of opportunity afforded by the favorable external environment of recent years to close some of the salient gaps and, thus, generate improvements in productivity growth while making progress towards greater equity.”
He was referring to gaps in the quality of education, capacity to innovate, as well as to adopt and adapt innovations, quantity and quality of physical infrastructure, and the reliability of contractual institutions
Latin American countries can use their natural resources as a springboard to prosperity, says de la Torre, but to “really get ahead and raise long-term economic growth, you need to put institutions, innovation, entrepreneurship, and skilled labor” into the mix to create a “virtuous circle of productivity growth.”  “Here is where the focus of national policies should lie,” he adds.
‘You Have to Have Brains Circulating’
Oppenheimer notes that there are many lawyers, economists, and even physicians in Latin America, but very few engineers. Only 19 percent of research and development worldwide goes to region. Of the 200 best universities in the world, only three are in Latin America, he adds.
“We have a shortage of people that have adequate knowledge in science and math—a big shortage there,” agrees de la Torre. “Latin America needs more entrepreneurship and a greater ability to learn and adapt faster.”
With an eye to fostering home-grown innovation, entrepreneurship and higher economic growth, Chile is now working with the World Bank to revamp its national innovation system to form stronger links among universities, think tanks, and the private sector.
The idea is to increase the nation’s “national learning capacity” – the ability to invent and adopt new technologies, production techniques, and modes of organization to reach and stay at the innovative frontier of its existing and new industries, says Bill Maloney, Lead Economist in the Bank’s Latin America and Caribbean region
An important part of building this capacity is ensuring that Latin America has access to knowledge, skills, and networks from abroad, says Maloney.
“You’ve got to be trading in the global market, and you have to have brains circulating—people going out and coming back.”
Panama: Potential 'Singapore for the Americas’
Or sometimes, the world may come to Latin America. In Panama, large companies such as Hewlett Packard and Caterpillar are setting up world-class service hubs and establishing links to the Polytechnic University of Panama to ensure the supply of qualified engineers and technicians.  Panama, with its “privileged geographical location,” has the potential of becoming a sort of “Singapore for the Americas,” says de la Torre.