A new commodity boom for Latin America?

Escrito el 17 enero 2011 por Gayle Allard en América Latina

The steady rise in commodity prices is pushing Latin America toward another boom period led by its raw-materials exports. The prospect holds promise for the region, but there are also serious threats.

Troncos de leña en el bosque

First, rising raw materials exports will boost exchange rates, making it harder for manufacturers to export as the «Dutch disease» takes hold. The Dutch disease will do much more to boost Latin American exchange rates than quantitative easing in the United States. This is a threat to the diversification of Latin American economies and could crowd out productive investment.

Second, economies dependent on raw materials often experience «boom-bust» cycles that make it difficult to follow stable, rational economic policies. When consumers do not associate good years with good policies, support for reform can be seriously eroded, and much reform is still pending in Latin America.

Finally, unless the institutions that promote accountability are firmly in place –a free press and a system of checks and balances– natural resource wealth can actually erode good governance. No examples need to be cited to bring to mind countries where high oil prices have kept corrupt, inept or autocratic leaders in power and where little of the new wealth has trickled down to the poor or even the middle class. Unless the use of natural resource wealth is transparent, the risk is that windfall profits will flee the country or prop up corrupt rulers rather than being invested in the country´s development.

So Latin America may welcome a new period of resource bonanza, but the risks of misusing the resources and stunting broader economic growth are very great. Informed citizens should start lobbying for solid policies so that the boom is not wasted.


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