Brookings Latin America Economic Perspectives

Mauricio Cárdenas, Eduardo Levy-Yeyati, and Camila Henao

Introduction and Summary:

There are two Latin Americas, and possibly three. The LAC-7 countries, plus Uruguay but except Venezuela, are growing robustly. This is the Latin America that is making headlines and that will continue to attract press attention and investors. However, there will be moderation, resulting from a less expansionist policy stance and less growth in the developed world. The second Latin America never managed to break free from macroeconomic constraints associated with high inflation and debt and will be more affected from low growth in the United States. Finally, there is Venezuela, where everything is out of the ordinary, including the political resilience of a government that has mismanaged the economy in ways that are becoming increasingly costly and evident.

As China continues to modernize, its demand for commodities will continue to increase. The marginal dollar of expenditures in China has a much greater impact on commodity demand than demand in the developed world, where services play a much greater role. This will continue to be a positive force for Latin America. But it is a mixed blessing. It will not last forever and Latin America in the meantime is experiencing a major transformation, with larger dependence on fiscal revenues that ultimately will need to accommodate once China reaches a level of income per capita where commodity demand stabilizes. Many analysts are arguing that this will occur in five years.