LAC too reliant on commodities - Time to innovate and diversify
Published:Friday | September 17, 2010 | 12:00 AM
CORAL GABLES, Miami:
A senior World Bank economist is predicting that Latin America will grow faster than expected this year, driven by booming Brazil and new trade deals with China.
Chief economist for Latin America and the Caribbean, Auguste de la Torre, said on Tuesday, as the Americas Conference 2010 got underway here, that he has a more rosy outlook on the region, saying gross domestic product (GDP) would expand by about six per cent, even though some areas of LAC "are not doing so well".
Official estimates also put Latin American and Caribbean growth at 5.1, almost a point below Torre's prediction.
Leading the pack is Brazil, which is expected to grow seven per cent, revised upwards from 5.3 per cent; followed by Peru, 6.3 per cent, as well as countries like Bolivia, Chile, Mexico, Paraguay and Uruguay, whose GDP are projected to expand, separately, by between four and 5.7 per cent.
The Caribbean is expected to add 1.5 per cent to LAC growth, led by Trinidad with about 2.2 per cent expansion. Jamaica, according to April 2010 estimates by the International Monetary Fund is expected to contract 0.3 per cent this year.
World Bank vice-president Pamela Cox, whose portfolio covers LAC, said while the bank has committed resources to the Caribbean to help them ride out the global crisis, it would take Caribbean countries years to innovate their way to sustained growth, but even longer if they do not start now.
She also cautioned that while the LAC region is showing impressive recovery, its productivity levels remain low and are among the worst worldwide.
Latin America's recovery has been driven by commodity export gains. Torre noted that the relationship that is evolving with China is complementary to LAC's development, but said it was "also worrying ... because the connection is through its natural resources wealth" which, he noted, raises the danger of LAC remaining too heavily reliant on commodities.
The commodity boom has sparked a new round of debate on whether the short-term blessings would inevitably lead to a bust. A new World Bank report, co-authored by Torre, suggests that the so-called 'commodity curse' - or, as he put it Tuesday, natural resources' dark side of a low-growth trap - can be avoided if countries save the upswing and use the proceeds to invest in the country on the downswing.
Harvard Kennedy School's Ricardo Hausmann also noted Tuesday that to sustain growth, LAC countries would need to invest heavily in new innovations and must diversify their economies beyond reliance on one or two export crops.
"People specialise, companies specialise; countries diversify," said Hausmann, the director of the International Development Center at the Kennedy School.
Hausmann said LAC only "appears resource-rich because it is the only game in town".
The "biggest outlier" in the current commodity boom, according to Torre, is Venezuela, whose economy, burdened by high inflation, is projected to contract by 2.6 per cent.
Inflation in the oil-rich country, which exports less than three million barrels of oil per day, and from which Jamaica buys the majority of its crude, was at 27 per cent in 2009 when the economy contracted 3.3 per cent, and could rise to 30 per cent this year.
But Torres is not so much concerned about Venezuela as he is about those riding the recovery from a two per cent contraction last year.
In some areas, "economies might overheat", he said, requiring central bank policy interventions.
And while Torre was worried that Latin American governments were putting undue burden on their monetary authorities to keep the economies stable, he boasted that the central banks have proved that they have the chops to handle the job.