Latin American economy improving but lagging

BY ANDRES OPPENHEIMER

As 2007 comes to a close, here goes an evaluation of Latin America's performance: The region is doing fairly well, but is continuing to fall dangerously behind the rest of the developing world.

Let's start with the good news: Latin America and Caribbean economies grew by an average 5.6 percent in 2007, according to the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). It marked the fifth year in a row of continued growth -- a good record in a region with a long history of wild economic swings.

What's more, poverty has declined from nearly 40 percent of the region's population in 2005 to 35 percent in 2007, according to ECLAC. And just this year, unemployment fell by 8 percent.

''This is the best period we have had in the past 40 years,'' said ECLAC's director Jose Luis Machinea in a telephone interview from Santiago, Chile.

He told me that the current economic expansion can be compared with the region's golden period at the end of the late 19th Century, when Europe was industrializing and buying massive quantities of Latin American raw materials. Today, the same thing is happening, only that China has taken Europe's place.

''We have a great window of opportunity, which will still last for a few years,'' Machinea said. ``But I'm worried over whether we will take advantage of it to invest in infrastructure, innovation, education and other things needed to grow in the long term.''

But if you compare Latin America's growth with that of other regions of the developing world, it's pretty unimpressive. In 2007, China grew by 11.4 percent, India by 8.5 percent, much of the rest of Asia expanded by about 7 percent, former Soviet Bloc countries grew by 8.1 percent, and Africa grew by 5.8 percent, according to U.N. figures.

More importantly, Asian countries have reduced poverty from 50 percent of the population four decades ago to 19 percent today -- much faster than Latin America.

Judging from what I heard from economists in New York, New Delhi and Beijing, one of Latin America's biggest problems is its lack of economic continuity. Periodically, power-hungry leaders in the region try to ''re-found'' their nations, leading to wild political and economic swings every five or six years.

As a result of ever-changing rules of the game, there are fewer domestic and foreign investments than in Asia or other parts of the developing world.

Second, as I wrote following my trip to India earlier this year, while much of Asia is obsessed with the future and guided by pragmatism, much of Latin America is obsessed with the past, and guided by ideology.

Venezuela's President Hugo Chávez, for instance, carries out his policies based on the teachings of independence hero Simon Bolívar, and has even changed the name of his country in his hero's honor.

Bolívar died in 1830, long before the invention of the telephone.

Third, while China, India and many Asian countries are getting investments in research and development that produce higher value-added exports, much of the investment in Latin America and the Caribbean goes to raw material extraction projects. Only 1 percent of the world's investment in research and development go to Latin America, largely because of the region's shortage of well-trained engineers and scientists, according to U.N. estimates.

Still, there are reasons to be optimistic. Latin American countries with ''foundational'' presidents who want to start over from scratch -- Venezuela, Bolivia, Ecuador and Nicaragua -- together account for less than 10 percent of the region's gross domestic product. They make a lot of noise but they are unlikely to change the course of the rest of the region.

Latin America's real history may be written in countries such as Brazil, Mexico, Chile, Peru and Costa Rica, which -- with various degrees of success -- are staying the course, growing and reducing poverty.

My conclusion: Latin America will continue growing in 2008, although at a somewhat slower pace, which most economists project at 4.9 percent. And while much of the region will continue missing its biggest window of opportunity in decades, pay attention to Brazil, Peru and Colombia.

Brazil may be the economic star of 2008. With its economy beginning to wake up after years of sluggish growth, and after the recent discovery of big oil fields off its coast, it may soon rival India as the next big economic star in the developing world.

On that happy note, I wish you all great holidays, and an excellent 2008!