Social progress in Latin America stalls

Social gains made in Latin America during the commodities boom are at risk of being lost in the long term

Brazilian President Dilma Rousseff, who currently faces calls for impeachment
Brazilian President Dilma Rousseff, who currently faces calls for impeachment 

Latin American economies have performed strongly on the back of the mining sector in recent years, with the biggest benefits felt among the region’s poorest. But despite the progress made in the last decade, governments might not be able to make these gains stick.

Many of Latin America’s countries have been able to capitalise on the dramatic growth of China. The region’s miners, including Petrobras in Brazil and Codelco in Chile, expanded quickly and boosted state balance sheets. This performance, combined with a new low interest rate environment and increased foreign investment, made Latin America an excellent location for growth.

It was the region’s poorest whose lives improved the most. According to the World Bank, between 2003 and 2008 the income of Latin America’s poorest grew by seven percent per year, while the richest grew by only 3.2 percent. In 2002, just over 13 of 100 people were living on less than $1.90 per day. By 2012, that ratio had decreased to 5.6 out of 100. Efforts such as the Bolsa Família programme in Brazil provided funding for families who committed to keeping their children in school, and public housing spending in Venezuela contributed to the distribution of wealth.

Associate Professor in the Political Economy of Latin America at the University of Oxford, Dr Diego Sanchez-Ancochea, said that while the economic growth was nowhere near as dramatic as East Asia’s, the benefits extended to more people.

Data released this month showed that, compared to this time last year, Brazil’s GDP fell by a record 4.5 percent

“It is true that GDP expanded and that this was used by several governments to expand social spending. There was also an expansion of formal jobs and, in some countries like Brazil, a rapid increase in minimum wages. There is little doubt that this contributed to an improvement in the living standards of some low income groups and the expansion of some parts of the middle class.”

But for Latin America, mining is no longer anywhere near as profitable as it was a few years ago. Commodity prices have quickly fallen and continuing uncertainty in Europe has cooled foreign investors’ enthusiasm. According to data from the Inter-American Development Bank, exports in the region suffered a 9.1 percent drop in the first quarter of 2015 compared with the same period in 2014.

Now the region is economically stagnating. Data released this month showed that, compared with this time last year, Brazil’s GDP fell by a record 4.5 percent. As copper prices have hit an all time low, miners in Chile are barely breaking even. Venezuela’s economy is reliant on oil exports, and as the price per barrel falls citizens are suffering through food shortages. Sanchez-Ancochea says the social programmes don’t address all the inequalities in the region.

“Nevertheless, the model had at least two significant problems. The economic structure did not change much and all countries remained dependent on commodity exports. And the role, influence and resources controlled by a small economic elite remained unchanged.”

As the economic climate worsens, voters have lost their patience with current leaders. Argentina’s recent elections saw the defeat of Daniel Scioli, the preferred candidate to Cristina Fernández de Kirchner. Right-wing Mauricio Macri took the top job in a surprise victory. In Venezuela, the opposition party has claimed the majority of seats in the National Assembly, limiting President Nicolás Maduro’s ability to pass legalisation. President of Brazil Dilma Rousseff is facing calls for impeachment after she was accused of violating budget laws.

“I think this is just democracy working properly,” said Sanchez-Ancochea. “Alternations of power should be expected when a party has been in power for a long time like in Argentina or Venezuela. We would not be surprised if this happened in Europe or the US. Moreover, there is little doubt that economic conditions have deteriorated and people are in search of answers. What is important to remember is that many groups are now receiving more social benefits than before, and will expect them even from right wing governments.”

For many countries, maintaining the same levels of social spending might not be possible. Brazil increased taxes while reducing spending during its last budget. Additionally, Brazil’s ability to pass policy is severely hampered as an investigation into Petrobras, the state-owned oil company, is underway. So far, it has produced over 100 arrests. In Argentina, Macri has announced several plans to open up the economy and make it more welcoming to foreign investors. One measure he has already put in place is the removal of export taxes on everything except soybeans. His ability to do more is dependent on reaching a settlement in the court cases that followed the nation’s debt default in 2001. As revenues for governments decrease, it’s difficult to imagine the expansive programmes that curbed poverty continuing.

While these programmes might stabilise economies, the cutting of social programmes threatens to plunge people who have just escaped poverty straight back into it. The increased social equality that was achieved in the last decade can’t be continued, but leaders, both for their citizens’ and their careers’ sake, should endeavour to maintain progress.