Last september 26th, ITAM, in collaboration with the Group of 30, gathered Dr. Guillermo Ortiz, former governor of Bank of México, Dr. Armínio Fraga, former president of Brazil central bank, and Dr. Andrés Velasco, Chile’s former minister of the Treasury for a keynote lecture to introduce the Why Does Latin America Underperforms? report. With Dr. Miguel Messmacher, Dean of the Division of Social Sciences, as moderator, the agenda addressed the current and future economic perceptions on Latin America’s economy and why are they stagnant.
Dr. Ortiz began his presentation speaking about the role Mexico plays in the global economic landscape, in comparison with other countries, and shared his concerns about its low growth and its tendency to deceleration. He also stated that these are not the product of a single cause, but they result from an unmeasurable amount of factors, throughout Latin America’s historical landscape.
“Grow rates in Latin America in the last twenty years have been rather mediocre, especially if we compare it to the group of countries with emerging economies in Asia, and some others we included in our sample, like, Egypt, Turkey, Malaysia, Poland and South Africa. This group of countries used to report half the income per capita than Latin America, today they are almost at the same level” he assured.
He elaborated further in the trade with foreign countries, the export basket and their complexity. He stated that, despite the fact that Mexico’s economy is more open than before and has a complex and diversified export basket, Latin America is a whole other case.
“Latin America continues to be a relatively closed economy, and despite that the exportation in proportion of the product had an important growth since the 90’s, in the rest of the countries was larger .” stated Ortiz Martínez.
Likewise, the cost of criminality and drug trafficking has not been overlooked as another issue that has depleted the economical growth in the region. Ortíz states that a huge underestimation from government agencies exists when calculating how it affects each country’s GDP, and how organized crime implies a plummeting in the economical development rates.
On his part, Dr. Arminio Fraga continued the presentation by diving deeper into schooling and education value in the world, he mentioned the case of Korea. He noted his admiration for the high rates and averages of schooling and the quality of the education. and, he even remembered that the evaluation of the quality of education in Latin America is scattered, stating that there is a relevant co-relation between the teaching levels and the economical development.
Fraga Neto also mentioned, as another factor, the fact that investment rates are much lower in comparison with emerging economies.
“An important element is that gross capital formation in Latin America is substantially lower than in the rest of the countries with which we compare ourselves” he stated .
Moreover, part of the problem corresponds to a institutionalization of public politics considered illegitimate by the population, situation that results from the the mistrust in the governmental agencies, he added.
Dr. Velasco, likewise, strengthen Dr. Fraga’s thesis that part of the meager growth in the region can be linked to skepticism of the system, low trust and the low credibility of the economic system, the implementation of public politics and financial institutions. Velasco Brañes listed four points that should be prioritized to be able to get out of economical stagnation: macroeconomic arrangement and restructuring, fiscal reorganization, monetary reorganization, trust building and legitimization of institutions. Likewise, the issue of the legislative bodies not legislating and their inability of reaching a consensus was addressed, as it delays the acting capabilities of all the government agencies.
“Latin America has an special tendency to having governments without parliamentary majority. If we have a parliamentary system, with twenty two political parties as in Chile, is impossible to reach an agreement, and if they don’t reach an agreement, the Congress doesn’t legislate, and therefore, they aren’t doing their job.” he lamented.
Thus, Dr. Velasco opts for a government plan in which they work hand in hand with the private sector, and insisted that they can’t fix the economic problem without fixing the political system.
“It is very difficult to do these economic reforms unless they are preceded by political changes, without the majority in congress, change doesn’t happen. This political issue is probably the heart of the conflict in the region and if we don’t tackle it the recommendations that economists make give are not going to be applied.” he added.
However, even-though Velasco criticized the actions of regional parliaments, he didn’t justified, under any circumstance, the transfer of issues and legislative activities to the Supreme Courts, and reminded us that the public life prosecution is an unequivocal symptom of failure in politics.
After a joint conclusion of all the speakers, in which they reiterate all these points, they presented the Latin America’s Growth Conundrum, product of the work and research of the team formed by the three economists, in which the issue is discussed in depth. They invited the attendees to read it and act with optimism for the future of Latin America.
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