Washington The conventional wisdom in most developing countries is that the world will be less capitalist, and less Washington-centered, once the economic crisis is over. In reality, only one part of this wisdom may hold.
Judging from the talk in the corridors of the spring meetings of the International Monetary Fund and the World Bank here this past weekend, the post-crisis world will be marked by a long-term decline in U.S. consumption habits, which in turn will force emerging countries to become more competitive to maintain their export levels.
Even if the U.S. economy begins to recover next year, as most economists predict, the United States will become a more frugal place, and somewhat less of the world’s economic engine. It will take many years for U.S. consumers to resume buying cars, computers or plasma TVs the way they used to, economists say.
“The cake will get smaller, and Latin American countries will need to work harder to get a bigger slice of the cake,” said Marcelo Giugale, the World Bank’s director of political economy for Latin America.
For Latin America, this will mean greater difficulties to export to the United States and Europe, fewer foreign investments, less tourism and fewer family remittances. Unlike in previous crises, where many Latin American countries bounced back by devaluing currencies to make exports cheaper, this time they will not be able to count on export-led recoveries.
Some countries will compensate by exporting more to China, India and other emerging economies. Still, China and India will also become somewhat smaller economies — and more demanding ones — than in recent years.
In the end, the Latin American countries that will emerge strongest from the crisis will be those that have access to credit markets, don’t overtax their exporters and are most productive, economists at the meetings said. In bad times, investors go to safe places.
“Disciplined, market-friendly countries like Brazil, Chile, Colombia, Costa Rica, Mexico, Peru and Uruguay will recover,” said Ricardo Hausmann, a Harvard economics professor. “Neo-populist countries with high taxes on exports and no access to credit markets, like Argentina, Ecuador, Nicaragua and Venezuela, will do poorly.”
This line of thinking is opposite to what critics of capitalism said at the previous weekend’s Summit of the Americas in Trinidad. There, Venezuelan President Hugo Chavez and his followers said the recent U.S. moves toward greater state regulation of the economy proves that capitalism is on its way out.
And, if economists are right, Latin American and Caribbean countries will need to move faster to become more competitive because the crisis will hit the region harder than expected.
According to IMF projections, Latin American economies will fall by 1.5 percent this year, before staging a modest recovery of 1.6 percent in 2010. Only a few months ago, the IMF was predicting a much smaller decline.
Among the countries whose economies will shrink this year will be Argentina (down 1.5 percent), Brazil (1.3 percent), Ecuador (2 percent), Mexico (3.7 percent) and Venezuela (2.2 percent), according to the IMF projections. Among the best performers will be Peru (plus 3.5 percent) and Chile (plus 0.1 percent).
Other projections, including those of the World Bank, foresee a less drastic regional decline, of about 0.7 percent. Economists at both institutions say they have revised their projections downward because they now foresee a longer U.S. recession.
My opinion: The post-crisis world will be less U.S.-centered, but not necessarily less capitalist.
Sure, populist leaders are right in stating there will be a U.S. shift toward greater state regulation to prevent financial bubbles. But they forgot that it was precisely this financial bubble that caused the artificial world expansion that allowed their countries to grow rapidly without becoming more competitive.
Populism is the offspring of good times. Now that the pie has shrunk for everybody, Latin American countries will need to become more competitive in a more frugal world.
— Andres Oppenheimer is a Latin America correspondent for the Miami Herald