In the 1980s, Latin America endured a debt crisis so severe that the entire decade was “lost” to poor economic performance.
Since then, other economies — most notably Japan — have endured their own “lost decades,” but today it is again Latin America that is facing difficulties. In fact, it has already lost five years.
Latin America has suffered a half-decade of anemic growth for the second time since the 1980s, and its lowest-performing five years since World War II.
In the region’s previous lost half-decade, after the 1997 East Asian crisis, annual GDP growth averaged 1.2 percent.
Between 1980 and 1985 — the worst five years of the debt crisis — average growth amounted to 0.7 percent. Over the past five years, it reached a mere 0.4 percent.
This is partly the result of an unfavorable global environment, reflected in Latin America’s deteriorating terms of trade since 2014, the virtual stagnation of overall international trade and two years of renewed financial turbulence in emerging economies.
However, other developing regions have faced the same external headwinds, but every one of them has outperformed Latin America, not only in the past five years, but since 1990 — a period during which annual GDP growth in the region averaged just 2.7 percent.
Clearly, long-term domestic and regional factors are also contributing to Latin America’s underperformance. They have economic origins, but also reflect political crises and complex political transitions in several nations.
Nowhere are these political challenges more apparent than in Venezuela, which, despite having the world’s largest proven oil reserves, is in economic free fall.
Since 2014, Venezuela’s GDP has contracted by more than 60 percent — one of the sharpest economic contractions in history for a nation not at war.
International sanctions have exacerbated Venezuela’s economic travails, but the problems began long ago, and have been fueled by sharp political polarization and the catastrophic economic policies of Venezuelan President Nicolas Maduro.
Excluding Venezuela, Latin America’s average GDP growth rises, but only to 1 percent per year — still worse than the region’s last lost half-decade. This partly reflects the region’s largest economy, Brazil, experiencing its deepest recession since World War II in 2015 and 2016.
In the second-largest economy, Mexican President Andres Manuel Lopez Obrador pledged, upon taking office in December 2018, to achieve 4 percent annual GDP growth. Instead, the economy has stagnated, and even slipped into recession in the first half of last year. Argentina has struggled with domestic macroeconomic imbalances, in addition to global financial turbulence and concerns about the return of a Peronist government. Political turmoil in Ecuador, and in Bolivia and Chile, has also undermined economic performance.
However, Latin America’s economic problems began long before the latest wave of economic and political instability.
Latin America achieved faster growth — a 5.5 percent average annual rate — in the 30 years that preceded the lost decade of the 1980s, when state-led industrialization was the order of the day, than in the 30 years that followed it.
The economic orthodoxy that took hold three decades ago derided the state-led approach and urged Latin American nations to undertake market reforms that, so far, have failed to fulfill their promise.