C&B Notes

Tale of Two Latin Americas

This article provides a nice summary of the divergent economic approaches currently found within Latin America.

There are two Latin Americas right now.  The first is a bloc of countries — including Brazil, Argentina and Venezuela — that faces the Atlantic Ocean, mistrusts globalization and gives the state a large role in the economy.  The second — made up of countries that face the Pacific such as Mexico, Peru, Chile and Colombia — embraces free trade and free markets…

In 2014, the Pacific Alliance trade bloc (consisting of Mexico, Colombia, Peru and Chile) is slated to grow an average of 4.25%, boosted by high levels of foreign investment and low inflation, according to estimates from Morgan Stanley. But the Atlantic group of Venezuela, Brazil and Argentina — all linked in the Mercosur customs union — is  projected to grow just 2.5%, with the region’s heavyweight, Brazil, slated to grow a meager 1.9%.

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By contrast, Venezuela and Argentina are starting to resemble economic basket cases, with high inflation and weak government finances…  Even Brazil, which has had far more responsible economic management than Venezuela or Argentina, is starting to struggle with rising prices and a boom in credit that is starting to turn.  Last year, one Brazilian summed up the Atlantic bloc harshly: “Brazil is becoming Argentina, Argentina is becoming Venezuela, and Venezuela is becoming Zimbabwe.”