Chilean economist Andrés Velasco applies that proverb according to which ‘it looks clearer from afar’.
Professor of London School of Economicswhere he is dean of the Institute for Public Policy, permanently tracks the region from England.
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Both the fact of having been Michelle Bachelet’s finance minister for four years as having tried his luck in politics give him a unique experience to interpret the complex current situation. invited to the assembly of camacol which took place in Barranquilla this week, spoke exclusively with EL TIEMPO.
The IMF has just revised downwards its growth projections for Latin America, which are once again below the world average. What does that tell you?
Latin America had a sharp fall with the pandemic, a fairly rapid recovery and, for the vast majority of countries, what comes now is stagnation. But the problem did not start yesterday.
For some time now, the region has only grown based on price booms for natural resources. Productivity increases little or not at all, and low investment does not contribute to growth. This longstanding problem is the elephant in the room, but there doesn’t seem to be a sense of urgency about it or the political consensus to do anything about it.
It seems that the region began to do its homework on inflation, since its central banks began to raise rates before those of other places.
Despite this, the results are mixed. Why?
First of all, because the pandemic it damaged supply chains and the Russian invasion reduced the availability of grains and fuels, with the consequent increase in prices. Also, because several countries have been slow to withdraw the fiscal stimuli that were essential during the public health crisis.
and nations like Chile and Peru, that made the mistake of allowing the withdrawal of private funds to face the pandemic, when governments were in a position to help families, caused a boom in consumption that central banks have had a hard time placating.
International conditions are going from bad to worse.
How to face that headwind?
And nations like Chile and Peru, which made the mistake of allowing the withdrawal of private funds to face the pandemic, when the governments were in a position to help families (…)
International conditions are bad and everything indicates that they will get worse. Today we face more geopolitical turbulence – in Russia, China, Iran and several other corners of the planet – than at any other time in the last quarter century. A recession is highly likely, both in Europe and in the United States.
China seems doomed to a period of low growth and financial instability. And to add insult to injury, interest rates continue to rise. In the past, every time that happened, some emerging country, or more than one, went into crisis.
Faced with this, the first thing is to face the very difficult international situation with good politics. We need agreements to face what is coming – in fiscal matters, support for families, and measures in favor of growth and productivity.
Do you think that our countries are better prepared than before to come out of the turbulence relatively well?
Yes and no. The good news is that our central banks and our fiscal institutions have proven to be stronger and more resilient than anyone thought. And that solidity is reflected in the credibility that the markets grant them.
Fifteen years ago, during the global financial crisis, only Chile had the space to carry out strongly countercyclical monetary and fiscal policies. Two years ago, at the height of the covid-19 crisis, at least half a dozen Latin American economies lowered their interest rates and increased their fiscal deficits, and the global market swallowed it quite well.
Furthermore, today medium-term inflation expectations remain reasonably well anchored in most countries. The bad news is that today we all have much less fiscal space. The weight of public debt increased a lot during the pandemic.
It is hard to imagine that, in the coming recession, the countries of the region will be able to use fiscal policy as the main anti-crisis buffer.
Why should we here in Colombia be concerned about the deterioration of the global environment?
For the same reason that all the countries in the region should be concerned. We are relatively small economies, that we make a living selling something to the rest of the world. If the world has problems, we will have them too. That is an obvious lesson from our recent and not so recent history.
And what is the risk of not paying attention to international markets?
The ups and downs of the international markets always end up making us pay attention, whether we like it or not. The difference is that some countries find these shocks prepared and others, not. And this lack of preparation is paid for, in terms of economic activity, employment and well-being.
What is the responsibility of employers in this situation?
Entrepreneurs often seem to be the brake on change. I would like to see them as the accelerator of change.
To say that entrepreneurs must continue to undertake and invest is obvious. I am more concerned about his political role. Entrepreneurs often seem to be the brake on change. I would like to see them as the accelerator of change.
In terms of employment, fighting discrimination, technological innovation, reducing emissions and slowing global warming, business must be at the forefront of much-needed transformations.
In the Communist Manifesto, Marx and Engels argued that capitalism is often revolutionary. It is now up to the businessmen to prove that Marx and Engels were right.
What worries you about the years to come, both globally and regionally?
In the region, I am concerned about the decline in the quality of politics and the attacks against liberal democracy. Venezuela is a dictatorship, Nicaragua almost is, and El Salvador is moving (although really one should say regressing) rapidly in that direction.
In many neighboring nations, governments without a parliamentary majority succeed one another, making it impossible for them to govern and implement the programs for which they are supposed to have been elected. It is a perfect recipe for disenchantment and frustration with democracy.
In the world, the risk of conflict between the United States and China is what should keep us all awake at night. China once seemed like a benign giant that would become more liberal as it prospered.. Today we know that hope was vain.
China is a repressive country and every day more prone to the use of technology to control the population. The domestic political climate has deteriorated, and this will affect investment and growth. A China that feels weakened may prove more volatile and unpredictable.
And what gives you hope?
The need to contain global warming brings with it the opportunity for Latin America to become a major provider of clean energy, mainly solar and wind power.
I believe in that cliché so accurate: in every crisis there is an opportunity. The need to contain global warming brings with it the opportunity for Latin America to become a major provider of clean energy, mainly solar and wind power.
Green hydrogen may be the region’s new salary. And the Zoom revolution means that an architect in Bogotá or Buenos Aires, instead of driving a taxi, can design a building in Brussels or Bahrain. An engineer or an accountant can do their work from home, for clients all over the world. The opportunities are there. What remains to be seen is whether we will know how to take advantage of them.
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