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Journal of Democracy 11.2 (2000) 41-55

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Latin America at the Century's Turn

Abraham F. Lowenthal

A skeptical, even pessimistic mood has been gathering in and about Latin America. Only two or three years ago, many observers were trumpeting the region's determined march toward free-market economics and constitutional democratic politics. Today, however, one must recognize the region's lackluster overall economic performance, the reversion toward authoritarian practices in some countries, and the pervasive limits on both free markets and effective democratic governance. It is hard to be upbeat about Latin America and the Caribbean at the century's turn.

This discouraged mood reflects some unpleasant realities: the past year's bleak economic indicators; the concentration of personal authority by presidents Hugo Chávez and Alberto Fujimori in Venezuela and Peru, respectively; the growing strength of insurgent movements in Colombia; and the galloping economic and political deterioration in Ecuador. Yet the disconcerting gap between yesterday's rosy projections and today's gloomy appraisals also derives from three other sources: unrealistic expectations about the pace of economic reform and democratization, unexpected exogenous forces beyond the region's control, and a failure to draw the proper distinctions among countries and subregions whose differences are as great as those among the nations of Europe or Asia. Many of the negative comments being made about Latin America today would carry much-diminished force if observers started with a more appropriate framework, discounted temporary [End Page 41] external setbacks, and distinguished more sharply among subregions with extremely diverse experiences.

Taken as a whole, Latin America has experienced a very difficult couple of years, especially by contrast with the previous optimistic projections. After achieving a 5.2 percent expansion in GDP in 1997, the second highest rate of overall annual growth in 20 years, Latin America's economies fell to 2.3 percent growth in 1998--only half a percent above the rate of population increase. The next year was considerably worse for most countries. Latin America and the Caribbean registered no overall growth for 1999.

Ecuador's economy shrank about 7 percent during 1999. Venezuela's dropped 9 percent during the first half of the year, although increases in world petroleum prices then halted the country's free fall. Colombia suffered its worst recession in 60 years, with GDP down 5 percent and unemployment reaching 20 percent. Argentina's economy declined about 3.5 percent, with unemployment at nearly 15 percent. Brazil, once considered South America's economic locomotive, struggled to register any growth for the year. In Chile, for so long a top performer, GDP actually declined by more than 1 percent.

Of the major Latin American economies, only Mexico--closely linked to the United States and benefiting from the U.S. boom as well as from the North American Free Trade Agreement (NAFTA)--had growth above 3 percent in 1999. The Dominican Republic, Costa Rica, Nicaragua, and Trinidad and Tobago also had good years, but their success, too, was largely a consequence of close integration with the U.S. economy.

Several South American countries began to recover in the second half of the year, and there are consensus projections of renewed growth for the whole region this year. The UN Economic Commission for Latin America and the Caribbean and other international agencies predict that overall growth in Latin America during the year 2000 could be as high as 3.6 percent if the U.S. economy remains strong; a hard landing of the U.S. economy, on the other hand, would be very damaging for much of Latin America.

Even if Latin America does rebound, however, the region's overall economic performance has been disappointing by contrast with the expectations aroused in the early 1990s. Despite the much-touted economic reforms in Latin America and the Caribbean, the average annual economic growth rate for the region as a whole during the 1990s was less than 3 percent, or about half what it was in the 1960s and 1970s and well below the 5-6 percent rate needed to reduce poverty. Although...


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