LatinFinance - September/October 2013 - 88

parting
shot
Latin economies must boost productivity growth if they
are to avoid economic and political crises. Emerging
Asia’s success is instructive. By Barry Eichengreen

A moment in time
the last decade was kind to much of latin america. Growth
averaged 4% since 2003, nearly double that of the preceding two
decades. crises were notable by their absence.
two developments explain this improved performance. first,
with a few notable exceptions, countries showed admirable
discipline in managing their fiscal and financial affairs. Balanced
budgets and current account surpluses became the order of the day.
the region reduced its external debt to GDP ratio from over 60% to
less than 30% between 2002 and 2009.
external debt denominated in someone else’s currency became
less of a problem. the difference was not so much the greater
success of latin countries in selling local currency debt to foreign
investors. the hoopla surrounding local-currency bond funds
notwithstanding, movement in this direction was small in the grand
scheme of things.
more important was the success in attracting foreign direct
investment. most important of all was the shift from current account
deficit to surplus. the second element making for fast growth has
been a favorable external environment. that is now darkening. With
chinese growth slowing to at best 7.5%, commodity prices have
weakened. and with the fed’s talk of tapering its security purchase
program, financial conditions have tightened. not surprisingly,
growth has already slowed.
now comes the hard part. latin america can no longer boost its
growth rate by eliminating fiscal excesses and avoiding financial
mistakes. it has already done that. it can no longer be grow by selling
high-priced energy and raw materials to china, as chinese growth
slows and becomes less energy and raw material intensive.
Growth can only come through higher productivity.
Unfortunately, productivity growth has not been latin america’s
strong suit. in particular, the growth of productivity continues to
disappoint by the standards of emerging asia.
one doesn’t have to look hard to see why. labor markets are
inflexible. the bureaucratic burden on start-ups is heavy. the region
ranks low on the World Bank’s highly visible indicators of ease of
doing business. chile, the highest rated economy in the region at
number 37, ranks just behind Slovenia and cyprus. argentina, at
number 124, is right behind Swaziland.
Productivity can be boosted by encouraging investment in
infrastructure, plant and equipment, technology and, above all,

88 l atinfina nce.com - September/October 2013

people. Here again latin
american performance is
not good. investment rates,
uniformly below 30%, are
disappointing by emerging
asian standards. in some cases
like Brazil where they run
below 20%, they are disastrous.
Governments are doing
what they can to channel the
available savings into what they
see as high-priority uses. But
the government agencies and
national development banks
responsible for these decisions
are attracted to grandiose
projects, which serve as
monuments to their initiative,
and to borrowers whose
political connections are more
obvious than their economic
expertise. in South Korea and
even china, the state has long
allocated credit to enterprises
on the basis of the success of firms in meeting visible export targets.
if only Brazil’s state development bank BnDeS did likewise.
Ultimately, the productivity of an economy reflects the skills,
training and education of its people. in middle-income countries
like Korea, university education is almost universal. latin america
performs poorly on this metric as well. and then there are notorious
problems of quality and cost in higher education, something about
which any striking chilean university student will gladly tell you.
there are no easy solutions. Boosting productivity growth is
harder than simply balancing the budget or raising interest rates.
one reading of the protests in Brazil is that maybe, just maybe, latin
american publics will now insist that their leaders get on with the
job. LF

“Boosting
productivity growth is
hArdEr thAn
simpLy BALAncing thE
BudgEt”

Barry Eichengreen is professor of economics and political science at the
University of California, Berkeley


http://www.LATINFINANCE.COM

LatinFinance - September/October 2013

Table of Contents for the Digital Edition of LatinFinance - September/October 2013

Latin Finance - September/October 2013
Contents
Front notes
People news
Debt news
Equity news
M&A news
After the storm
Advantage Mexico
Treading water
New structures
Mexico
Regaining the Initiative
Deficit Ahead
Building up
Switching Course
Brazil
Work in progress
Extreme makeover
Mind the gap
Brazilian life insurance
Andean
Breaking the fall
Reaching out
Market movers
Paraguay
Smoothing the cycles
Thinking big
Parting Shot
LatinFinance - September/October 2013 - Latin Finance - September/October 2013
LatinFinance - September/October 2013 - Cover2
LatinFinance - September/October 2013 - Contents
LatinFinance - September/October 2013 - 2
LatinFinance - September/October 2013 - 3
LatinFinance - September/October 2013 - Front notes
LatinFinance - September/October 2013 - 5
LatinFinance - September/October 2013 - People news
LatinFinance - September/October 2013 - 7
LatinFinance - September/October 2013 - Debt news
LatinFinance - September/October 2013 - 9
LatinFinance - September/October 2013 - Equity news
LatinFinance - September/October 2013 - 11
LatinFinance - September/October 2013 - M&A news
LatinFinance - September/October 2013 - 13
LatinFinance - September/October 2013 - 14
LatinFinance - September/October 2013 - 15
LatinFinance - September/October 2013 - 16
LatinFinance - September/October 2013 - 17
LatinFinance - September/October 2013 - 18
LatinFinance - September/October 2013 - 19
LatinFinance - September/October 2013 - 20
LatinFinance - September/October 2013 - 21
LatinFinance - September/October 2013 - 22
LatinFinance - September/October 2013 - 23
LatinFinance - September/October 2013 - After the storm
LatinFinance - September/October 2013 - 25
LatinFinance - September/October 2013 - Advantage Mexico
LatinFinance - September/October 2013 - 27
LatinFinance - September/October 2013 - Treading water
LatinFinance - September/October 2013 - 29
LatinFinance - September/October 2013 - 30
LatinFinance - September/October 2013 - New structures
LatinFinance - September/October 2013 - 32
LatinFinance - September/October 2013 - 33
LatinFinance - September/October 2013 - 34
LatinFinance - September/October 2013 - 35
LatinFinance - September/October 2013 - 36
LatinFinance - September/October 2013 - 37
LatinFinance - September/October 2013 - 38
LatinFinance - September/October 2013 - 39
LatinFinance - September/October 2013 - 40
LatinFinance - September/October 2013 - Mexico
LatinFinance - September/October 2013 - Regaining the Initiative
LatinFinance - September/October 2013 - 43
LatinFinance - September/October 2013 - Deficit Ahead
LatinFinance - September/October 2013 - 45
LatinFinance - September/October 2013 - Building up
LatinFinance - September/October 2013 - 47
LatinFinance - September/October 2013 - 48
LatinFinance - September/October 2013 - 49
LatinFinance - September/October 2013 - 50
LatinFinance - September/October 2013 - 51
LatinFinance - September/October 2013 - Switching Course
LatinFinance - September/October 2013 - 53
LatinFinance - September/October 2013 - 54
LatinFinance - September/October 2013 - 55
LatinFinance - September/October 2013 - 56
LatinFinance - September/October 2013 - Brazil
LatinFinance - September/October 2013 - Work in progress
LatinFinance - September/October 2013 - 59
LatinFinance - September/October 2013 - 60
LatinFinance - September/October 2013 - 61
LatinFinance - September/October 2013 - Extreme makeover
LatinFinance - September/October 2013 - 63
LatinFinance - September/October 2013 - 64
LatinFinance - September/October 2013 - 65
LatinFinance - September/October 2013 - 66
LatinFinance - September/October 2013 - Mind the gap
LatinFinance - September/October 2013 - 68
LatinFinance - September/October 2013 - 69
LatinFinance - September/October 2013 - Brazilian life insurance
LatinFinance - September/October 2013 - 71
LatinFinance - September/October 2013 - 72
LatinFinance - September/October 2013 - Andean
LatinFinance - September/October 2013 - Breaking the fall
LatinFinance - September/October 2013 - 75
LatinFinance - September/October 2013 - 76
LatinFinance - September/October 2013 - Reaching out
LatinFinance - September/October 2013 - 78
LatinFinance - September/October 2013 - 79
LatinFinance - September/October 2013 - 80
LatinFinance - September/October 2013 - 81
LatinFinance - September/October 2013 - Market movers
LatinFinance - September/October 2013 - Paraguay
LatinFinance - September/October 2013 - Smoothing the cycles
LatinFinance - September/October 2013 - 85
LatinFinance - September/October 2013 - Thinking big
LatinFinance - September/October 2013 - 87
LatinFinance - September/October 2013 - Parting Shot
LatinFinance - September/October 2013 - Cover3
LatinFinance - September/October 2013 - Cover4
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