Latin America: Captive to Commodities

The countries of Latin America remain highly susceptible to international political and economic trends. Since 2002, the region has prospered: growth has been close to 6 percent per year—the highest since the 1970s, and far above the lackluster, long-run average of 3 percent. This growth spurt is traced in large part to a bonanza: high international prices for commodities. But credit must also be given to governors who have pursued sober macroeconomic policies. To date the region has navigated the shoals of the concomitant weakening of its most important trading partner—the United States—and the mess in the international credit market. Still, the boom from robust commodities prices, in everything from oil to copper to soybeans, raises unsettling questions.

A healthy average growth rate masks weaknesses. Not all countries in the region have a valued commodity. Moreover, within each country there are sectors that are stagnant—or worse. In particular, the region’s incipient industrial sector is not faring well, with stiff competition from China and other countries in Asia—the same set of countries credited with lifting commodity prices. Other sectors, including construction, suffer from the rise in those prices. Energy and food costs are up, and this hurts consumers. Political conflict and violence are debilitating. Some countries are more dependent on the health of the U.S. economy—and its porous borders—than are other countries. Most worrisome, though, is dependence on a handful of commodities as an “engine” of growth. “This time is different,” many believe. Is it? Can commodity prices remain high? Is prudent management of the region’s economies inured to a weakening of commodity prices? Can commodity-led growth contribute to broad-based economic development?

Economists fear that the commodity boom undermines efforts to develop well-balanced, robust economies propelled by innovation and able to compete in the international economy. Economies may be dominated by a handful of industries, but at the least these industries—whatever they may be—should be constantly increasing both their production and their productivity. In the absence of such gains, the region’s economies are especially vulnerable to a sudden fall in commodity prices. And economists worry that commodity prices will—sooner or later—fall. This boom-and-bust pattern has plagued Latin America since the colonial era.

In addition to the risk of being blinded by the gush of funds from commodity exports, there is the temptation to succumb to a naïve romanticism about agriculture and about what remains of the peasantry, los campesinos (literally, the people of the fields). With food prices soaring, including the prices of basic grains—maize, beans, and rice—questions are being asked about the desirability of importing grains. There is renewed talk in the region of “food security,” of “food sovereignty.” Peasants sh...