IHS Markit Senior Vice President Carlos Pascual convenes panel of experts on the region for the latest edition of CERAWeek Conversations – available at https://ondemand.ceraweek.com/cwc
WASHINGTON--(BUSINESS WIRE)--How governments and investors in Latin America can resuscitate opportunities for stability and prosperity in the face of populist politics and civil unrest is the subject of the latest episode of CERAWeek Conversations, available today.
Latin America is at a tipping point. Countries experiencing their worst recessions in a generation due the COVID-19 pandemic have given rise to an era of discontent where public protests have challenged the directions of leftist and conservative governments alike. Yet in some ways this is also a positive break with the past, in that voices of discontent also suggest, at least in some countries, an opening of political processes that contrast with authoritarian tendencies of decades past.
The region has the human and natural resources to help diversify global supply chains, build clean energy economies and create sustainable jobs. Yet the path to inclusive growth has been mired in public protests that have disrupted political and economic life.
In a conversation moderated by Amb. Carlos Pascual, senior vice president, global energy, IHS Markit (NYSE: INFO) preeminent experts on the region examine the challenges and choices ahead in Latin America’s “era of discontent.”
“Latin America has struggled through COVID, as the rest of the world has. But the recovery has been a challenge and many times it has been expressed through political discontent,” Pascual says. “How deep is it? How structural is it? What are the opportunities to move out of it? And what are the kinds of choices policymakers can make in order to be able to address the political directions that their countries are taking?”
Mauricio Cárdenas, visiting senior research scholar, Center on Global Energy Policy at Columbia University, SIPA, former minister of finance, Colombia
Ricardo Hausmann, Rafik Hariri professor of the practice of international political economy and director, Growth Lab, Harvard Kennedy School of Government, former chief economist, Inter-American Development Bank, former minister of planning, Venezuela.
- Shannon K. O’Neil, vice president and senior fellow for Latin America studies, Council on Foreign Relations
The complete video is available at: https://ondemand.ceraweek.com/cwc
Interview Recorded Wednesday, July 28, 2021
(Edited slightly for brevity only)
- On root causes of social unrest and political discontent in Latin America:
Ricardo Hausmann: “Everybody is suffering from discontent. It’s understandable. For many countries, including Colombia and Ecuador, this is their worst recession ever. For other countries this is the worst recession in at least a generation. Internationally it’s a region that did very poorly. It’s a region that did worse in 2020. It had very tough social discontent and lockdown policies—the toughest in the world in terms of reduction in mobility—[and] very ineffective social distancing policies. It has had really bad outcomes epidemiologically. Countries are very differentially vaccinating. But the payoffs of vaccinations in terms of containing the pandemic are non-linear and backdated. You only really get the benefits when you get to really high rates of vaccination which we’ve only seen in a couple of countries—Chile and Uruguay.
“Political discontent sometimes gets channeled through political processes. Some countries have elections and that’s the channel through which these things get expressed. Other countries have constitutional reforms. In countries that don’t have the possibility of giving it a political mode of expression then things become a bit more problematic, like in my own country of Venezuela or Nicaragua.”
Mauricio Cárdenas: “Too much emphasis on low public debt and fiscal sustainability can actually backfire because it can bring in some unrest that makes the essential economic institutions unsustainable. A balance is the right approach. The way out of this crisis is not about restoring the fiscal balance and lowering public debt. The right approach is technocratic in a way but it’s mostly political. It’s about having the capacity to bring into the conversation sectors that are not well represented in our countries that haven’t really been part of the political process.”
Shannon O’Neil: “The region holds the infamous distinction of being the most dangerous region in the world. It has less than 10% of the global population and it has one-third of all homicides. This is really a challenge. Very few governments have been able to get their hands around this and find a way to provide personal safety to people. You look at what voters want—part of their discontent is they and their families don't feel safe walking down the streets [or in] the day-to-day business that they do. As we look at the agendas for Latin American countries and economies going forward, this is going to be a big issue and it’s a big cost to inclusion. People end up in the informal economy and less productive when there’s a huge cost to providing security. This goes hand-in-hand with the economic growth that people are searching for as well as political discontent.”
Ricardo Hausmann: “The most important thing to know about inequality in Latin America is it’s not so much sharing of the pie as it is pies of very different sizes being cooked in different [ways]. There are some people who are in a relatively modern economy with one standard of living and some who are in the informal economy and in a different economy who are baking small pies at very low productivities. Inclusion is not the same as redistribution. The question is can we have the wherewithal to include you in a more expanded modern economy? That requires a different set of actions. It’s inclusive policies, which may be very expensive. It’s about the structure of cities, transportation infrastructure, and security. An inclusive agenda is growth-promoting. It may be as expensive or even more expensive than a redistributing agenda, but it’s not palliative, it’s curative.”
- On pathways to political and economic recovery and prosperity in Latin America:
Mauricio Cárdenas: “The issue of vaccinations is also very revealing about what’s wrong in Latin America. Everyone talks about the two-speed world. What’s behind that? One aspect is ineffectiveness on the part of the public sector. Our public sectors are too constrained, they don’t take risks, they don’t want to invest in areas where things can go wrong. That affects many opportunities for inclusive growth. This is a good example of what’s wrong with the state in Latin America. We need to resolve the issue of vaccines, but beyond that we need to think about how to strengthen state capacities.”
“We’re in a tipping point. As a result of this COVID crisis things are not going to be the same in the region. They could change for the better; they could change for the worse. We can do this the serious way—do the reforms that we haven’t done in the past. One very important [reform] is to set the ground for inclusive growth. The region will need to do adjustments. The region has too much debt, it will come out with large deficits from this crisis. So, this is the right time to rethink what the government does, remove a lot of government programs that are not effective and [reprioritize] the ones that really favor inclusive growth. This political opportunity is there and it’s for us Latin Americans to seize that.”
Shannon O’Neil: “One of the biggest shifts that we’ve seen in the last year is the return of—or rise of—industrial policy, and particularly in the United States. Under the Biden administration we’re seeing a whole rethink and down the road rejiggering of strategic supply chains. Part of it means reaching out to allies. There, Latin America is well-poised to take advantage. Latin American nations, most of them are long-standing geopolitical allies of the U.S. It is the region of the world that has the most free trade agreements with the U.S. so the rules are already easy for imports and exports from the U.S. to most of the countries within the region.
“And Latin America [already] has a lot of capacity for the kinds of issues and areas that the U.S. is thinking about, whether it’s critical minerals, it is also a place where you also see a lot of pharmaceutical capacity. As the United States looks to bring supply chains into a more secure area, they are going to look more closely at home. Proximity is going to matter, and the region is a place to turn. That will, though, depend on the politics in the region and governments and companies in the region wanting to participate in the supply chain. The opportunity is there but it’s not something that’s going to happen if you don’t see a response from the region and active policies from countries in Latin America to participate in those supply chains.”
Ricardo Hausmann: “On the positive side, there’s a terms of trade boom for a lot of South America. Commodity prices are up, coffee prices are up, and capital markets have held up. Countries have been able to borrow at fairly reasonable rates, so they haven’t had to deal with a sudden stop in capital flows. There is this thing on the horizon that China has become the largest destination market for South American products. There is an increasing tenson between the U.S. and China. There’s one reason why Latin America should be strongly anchored on the U.S. and the Western alliance and the E.U. It’s sort of our natural world. [But] we tend to be more complementary with the import needs of China. That’s a challenge that the region will have to manage and it’s going to be a feature of many countries in the world: [China] is going to be the main importing country in the world and it’s going color or even limit the kind of conflicts that can be engineered between the U.S. and China.”
- On investment opportunities for Latin America in the energy transition:
Mauricio Cárdenas: “Latin America is in a unique position to really advance the energy transition but that requires capital, and that capital should come from the U.S. Latin America is not really part of [Mainland China’s] Belt and Road Initiative. It should be part of a new initiative promoted by the Biden administration to really deploy concessional capital. The multilaterals can play an important role. The [U.S] Development Finance Corporation should be a key player. The region is engaged in the climate conversation and very ambitious in terms of reducing emissions, but it really lacks more capital to electrify transportation, to build new clean energy projects, and to make sure that we preserve our rainforest. There’s an opportunity here and something that connects very well with U.S. interests.”
Shannon O’Neil: “There’s great opportunity for Latin America in creating green energy and there’s money that can go into that. Latin America has a head start. It has a pretty green set of electricity grids and energy matrices. There’s a lot of bounty that they could tap into. One of the things that would do is not only bring money in and jobs and economic growth because of the creation of the infrastructure, it would also provide a place that all kinds of international companies could go to put manufacturing and other things that aren't necessarily directly tied to green technologies or green infrastructure. If you look around the world, you look at the Fortune 500 companies, the vast majority of them have already made climate pledges. They said they're going to be carbon neutral in the next couple of decades. As they try to meet those pledges that they've made to investors, they need to produce in places that have clean energy matrices so Latin America could be that place for manufacturing.”
Ricardo Hausmann: “The reason why this green alternative is important is that renewable energy is much less transportable than fossil fuels. That is going to relocate energy intensive industries to places that have abundant local renewable energy. Something [else] we discovered with COVID [is that] many things that we used to do in the office we can do from home. Now we realize that anything that can be done from home can be done from abroad. That means that value chains will relocate tasks to places where those tasks can be done more cheaply. Those don’t have to be physical. They can be intellectual. There’s going to be a relocation of activities towards these places. Latin America has a huge wage differential with the U.S. in many of the professional tasks. This is another dimension of “near-shoring.” It’s outside of physical value chains, it’s just tasks that can be done through telework.”
Watch the complete video at: https://ondemand.ceraweek.com/cwc
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About CERAWeek Conversations:
CERAWeek Conversations features original interviews and discussion with energy industry leaders, government officials and policymakers, leaders from the technology, financial and industrial communities—and energy technology innovators.
The series is produced by the team responsible for the world’s preeminent energy conference, CERAWeek by IHS Markit.
The complete episode library is available at https://ondemand.ceraweek.com/cwc.
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