Home' Trinidad and Tobago Guardian : April 3rd 2014 Contents One morning last month Louis
Dreyfus, a big commodity-
trading house, formally
opened a new US$10 million
storage depot in the Peruvian
port of Callao. Two of its six
bunkers were piled high with 55,000 tons of
fine brown dust covered by white tarpaulins:
copper and zinc concentrate, awaiting blending
and shipment. The warehouse is "a bet that
Peruvian mining will continue to be compet-
itive," says Gonzalo Ramírez, a Dreyfus man-
That looks like a sound wager. Blessed with
high-grade ores and cheap energy, Peru s output
of copper, already the world s third-largest,
will more than double in the next three years,
thanks to the opening of several low-cost mines.
Rather than marking a new dawn, however,
this burst of investment comes at the twilight
of the great commodity boom occasioned by
the industrialisation of China and India. By
providing an unprecedented boost to the
region s terms of trade, the ratio of the price
of its exports to that of its imports, this handed
many Latin American countries a bounteous
No longer. Oil and gas excluded, commodity
prices are down by a quarter from their level
of 2011, with prices of minerals falling by more
than those of foodstuffs. After growing by an
annual average of 4.3 per cent between 2004
and 2011, the region s economies managed only
2.6 per cent last year.
Hopes of acceleration this year are being
dashed. Brazil has had to raise interest rates
sharply to contain inflation, and is unlikely to
beat its 2013 growth of 2.3 per cent. Mexico,
although less commodity-driven than South
America, is unlikely to do much better. Data
suggest that Chile is growing at its slowest
rate in four years. Even Peru, along with Panama
the region s star economy of the past decade,
has felt the cold draft: It expanded at five per
cent in 2013, down from an average of seven
per cent since 2005.
To make matters worse, moves toward nor-
mal monetary policy in the United States have
prompted jitters in Latin American financial
markets since May 2013. Doomsayers say that,
with the boom having been squandered in a
consumption binge, the region s traditional
economic frailty will be exposed as commodity
The picture is more nuanced than that. Latin
America saved and invested more of its windfall
than in the past, though less than other parts
of the world did, says Alejandro Werner, the
International Monetary Fund s leading official
for the region. The World Bank s chief econ-
omist for Latin America, Augusto de la Torre,
points out that the investment rate in the
region, at almost 25 per cent of GDP, has at
last caught up with that in southeast Asia,
though Brazil, at 18 per cent, is a laggard.
Most countries have paid down debt and
accumulated reserves, and their banking systems
are less dollarized than in the past. Floating
exchange rates and inflation-targeting by more-
or-less independent central banks mean that
many countries can adjust by allowing their
currencies to depreciate without triggering a
downward spiral of inflation and devaluation.
Some countries have been less responsible
than others. Venezuela, with a fiscal deficit of
12.5 per cent of GDP last year, is paying the
price for squandering its oil windfall. Argentina
is moving toward more orthodox policies, and
may narrowly avoid disaster. There are a few
caveats elsewhere too: Having used fiscal stimuli
to counteract the 2008-2009 financial crisis,
some governments---notably Brazil s---were
slow to tighten again. Santiago Levy of the
Inter-American Development Bank notes that
the region s structural fiscal balance is better
than it was in 1997, but worse than it was in
Levy also worries that currency depreciation
could damage Latin American companies that
took advantage of cheap money to issue bonds
abroad. The stock of corporate bonds that is
vulnerable to depreciation risk in five larger
economies---Brazil, Chile, Colombia, Mexico
and Peru---amounts to US$200 billion, he reck-
The biggest threat to financial stability is a
sharp slowdown in China. Miguel Castilla,
Peru s economy minister, notes that commodity
prices still are above their average of the past
10 years. Were China s growth rate to dip below
seven per cent, however, that soon would
change. He stresses, though, that Peru, like
Chile and Colombia, has scope to respond with
fiscal and monetary measures.
More than economic instability, the worry
for Latin America is low growth, the risk that
3 per cent has become the new norm. Werner
says that the halt in the rise in the region s
terms of trade has itself knocked a percentage
point off growth.
With full employment, and with the labor
force and domestic credit both expanding less
rapidly, Latin America must look more to pro-
ductivity improvements to boost GDP; and
that is its Achilles heel.
Latin American productivity has improved
a bit, but still lags behind Asia s. The reasons
for this shortfall date back many years. Although
Latin Americans have more education than in
the past, international tests show that they
still do not learn enough in school. De la Torre
also points to a relative lack of innovation by
Latin American firms of all sizes, to poor trans-
portation networks and to a lack of competition,
especially in services.
Another big handicap is the large informal
economy. In Peru no less than 61 per cent of
the work force works in the informal sector,
according to the statistics agency.
"It was an escape valve when Peru was a
poor country," Minister for Production Piero
Ghezzi says, "but it s a problem now."
To see why, consider Mexico, where around
half the work force is informal. A new report
by McKinsey, a consultancy, suggests that,
astonishingly, Mexican workers actually have
become less productive during the past three
decades despite numerous economic reforms.
Output per worker fell from US$18.30 an hour
in 1981, in purchasing-power-parity terms, to
US$17.90 in 2012.
The reason, McKinsey argues, is that Mexico
has a dual economy. Productivity at large,
modern firms, which are integrated into the
world economy, has risen by 5.8 per cent a
year since 1999. However, the productivity of
small businesses, those with 10 or fewer work-
ers, many of which are informal, declined from
28 per cent of that of large firms, ones with
500 or more workers, in 1999 to only nine per
cent in 2009. Small firms account for 42 per
cent of the work force, a share that is big and
Fixing the productivity problem is far more
complicated than slashing the fiscal deficit.
Assembling land, permits and finance for infra-
structure projects can take many years in Latin
America. Educational reforms take a similar
time to have an effect. Informality is a complex
issue, as much cultural as economic.
Governments no longer can afford to put
off reforms indefinitely, however. The risk the
region faces is not the financial crises of old
but rather the clash between low growth and
the aroused expectations of growing middle
@2014 The Economist Newspaper Ltd.
Distributed by the New York Times Syn-
BG12 | REGIONAL
BUSINESS GUARDIAN www.guardian.co.tt APRIL 2014 • WEEK ONE
transparency in city
Latin Americans living in major cities want
more transparency and participation in local
governments' decisions on new policies and in-
vestments involving urban infrastructure, ac-
cording to results of a groundbreaking survey
released by the Inter-American Development
Bank (IDB) on March 28.
The survey involved 5,000 people in Buenos
Aires, Mexico City and São Paulo, three megac-
ities with more than ten million people, as well
as in Bogotá and Lima, two capitals likely to
reach that category over the next decade.
The survey "Megacities and Infrastructure in
Latin America: What its people think" also
showed that security has become a top prior-
ity for urban dwellers, independent of their so-
cioeconomic standing. For the middle class,
public transportation is a major factor affect-
ing quality of life. For poorer households, lack
of access to water, sanitation and electricity
services continues to be a major obstacle to
improving their living conditions.
"Latin American megacities are experiencing
strong economic growth, presenting huge chal-
lenges to policymakers responsible for provid-
ing high-quality public infrastructure and
services," said Alexandre Meira da Rosa, man-
ager of the IDB's Infrastructure and Environ-
ment Sector. "This survey shed light on the
priorities of urban citizens. We have to know
what Latin Americans expect from urban in-
frastructure so we can better work with gov-
ernments to meet their needs."
Today, Latin America is the world's most ur-
banised region, with 82 per cent of its popula-
tion living in cities. By 2050, it is expected to
reach 90 per cent. Cities concentrate most
economic activity, a reason why good urban in-
frastructure and public services are essential
pillars for any country seeking to raise living
standards and boost its competitiveness.
The study identified the most pressing chal-
lenges to promote sustainable development in
cities as well as the biggest problems affecting
access to basic infrastructure and public serv-
ices and the quality of life in urban centers.
Preliminary findings included:
• Security and transparency are the top pri-
orities for citizens in five cities.
• 28.1 million people in these cities commute
at least 90 minutes a day. That is equivalent to
ten weeks of work a year per person.
• The middle class is the largest group of
public transport users in large cities.
• 76 per cent of respondents said they are
satisfied with the water service. Levels varied
widely: in Bogotá, only two per cent said serv-
ice is bad or very bad. In Mexico City, 28 per
cent were dissatisfied.
• 64 per cent said electricity services are ex-
pensive. On average, low-income households
are subject to more blackouts and voltage fluc-
tuations than higher income households.
• 78 per cent believe that extreme weather
events, such as floods, heavy rains, and ex-
treme temperature waves, are happening
more frequently than in the past. 82 per cent
said global climate change impacts their cities.
67 per cent believe that climate change di-
rectly affects their lives.
• One in six people surveyed said public
spaces are among the top four urban infra-
Life after the
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