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Tuesday, December 05, 2006

Rogoff: The U.S. Needs to Wake Up to What's Happening in Latin America

Kenneth Rogoff wonders why the U.S. has shown "inexplicable indifference towards" recent developments in Latin America, an attitude he believes "is both naive and dangerous." He also expresses his view of what Latin America needs to do to increase its rate of economic development:

Turning a blind eye, by Kenneth Rogoff, Project Syndicate: When is the United States going to wake up to what is happening in Latin America? The growing influence of Venezuela's leftist president, Hugo Chávez, is casting a dark shadow over the region. Some countries - Chile, Colombia, and Costa Rica, for example - remain committed to progressive growth-oriented and democratic regimes. But over the past year, allies of Chávez have come to power in countries like Ecuador and Bolivia, and just missed winning in a few others [such as] Mexico...

With almost everyone else in the world successfully pursuing more flexible market-oriented economies, why is Latin America veering dangerously in another direction? ... Fortunately, at least half the voters in the region appreciate these improvements; otherwise, the situation would be far worse. Nevertheless, a growing schism between left and right has led to a distressing level of policy paralysis.

This is nowhere more apparent than in Mexico, the region's second largest economy after Brazil. Despite its enviable location next door to the ... US, Mexico's growth has ranged from poor to tepid since its economic crisis a decade ago. Why hasn't Mexico benefited more from the 1992 North American free trade agreement?

Part of the problem is the emergence of China, whose ultra-low wages provide tough competition for Mexico, where wages are merely very low. But Mexico's real obstacle is a political system unable to achieve any consensus on essential economic reforms. ... Worst of all, the election loser, López Obrador, seems willing to throw the country into turmoil rather than accept the constitutional legitimacy of his defeat.

So how is the US planning to react? By following through on plans to build a 2,000-mile wall across its southern border. ...

Mind you, even the weak growth of the last few years in Latin America marks the region's best performance since the 1970s... Nevertheless, Latin America remains the slowest growing of any of the world's developing regions. ... Even sub-Saharan Africa, with its wars and famines, has enjoyed more rapid growth in the past few years.

Does the pied piper of Venezuela offer a fairer and better way to grow? Unfortunately, no. Venezuela is merely being pulled along in China's tailwind thanks to high oil prices. When oil prices collapse, as they will at some point ..., Venezuela's economy will collapse with them...

In today's hyper-competitive global economy, there is no reliable "third way" for countries to avoid continued liberalisation and market-oriented reforms. Instead, the current instalment of Latin American socialism is all too likely to produce a re-run of tragic episodes from the past.

In this context, the US's inexplicable indifference towards the region is both naive and dangerous. The incoming Democratic US Congress has signalled that free trade deals with Peru and Colombia need to be "renegotiated". What kind of message does that send to the US's few remaining allies in the region? If Americans don't start embracing their friends in Latin America, it may take a generation to undo the damage.

Beyond maintaining free trade deals, though some of you won't agree that's in our interest, what should we do to help these countries develop?

    Posted by on Tuesday, December 5, 2006 at 03:24 AM in Economics, Politics | Permalink  TrackBack (1)  Comments (42)


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