Geopolitics

07.16.13

Latin America’s Secret Success Story

Ahead of the Biennial of the Americas conference, Shannon K. O’Neil on how the United States’ neighbors to the south have quietly been surging in global importance.

Latin America rarely looms large on the global scene, overshadowed by Europe, the Middle East, and Asia on the agendas and in the imagination of policymakers, business leaders, and the global chattering classes. But under cover of this benign neglect, the region has dramatically changed, mostly for the better.

Its economies have flourished. Once known for hyperinflation and economic booms and busts, Latin America is now a place of sound finances and financial systems. Exports—ranging from soy, flowers, copper, and iron ore to computers, appliances, and jets—have boomed. GDP growth has doubled from 1980s levels to an annual average of 4 percent over the past two decades, as has the region’s share of global GDP, increasing from 5 percent in 2004 to nearly 8 percent in 2011.

Many of the countries have embraced globalization, opening up their economies and searching for innovative ways to climb the value-added chain and diversify their production. Trading relations too have changed: U.S. trade has expanded at a fast clip even as these nations diversified their flows across the Atlantic and Pacific. These steps have lured some $170 billion in foreign direct investment in 2012 alone (roughly 12 percent of global flows). Led by Brazil and Mexico, much of this investment is going into manufacturing and services.

Already the second largest holder of oil reserves in the world (behind only the Middle East), the hemisphere has become one of the most dynamic places for new energy finds and sources. From the off shore “pre-salt” oil basins of Brazil to the immense shale gas fields of Argentina and Mexico, from new hydrodams on South America’s plentiful rivers to wind farms in Brazil and Mexico, the Americas’ diversified energy mix has the potential to reshape global energy geopolitics.

Already the second largest holder of oil reserves in the world (behind only the Middle East), the hemisphere has become one of the most dynamic places for new energy finds and sources.

Democracy, too, has spread, now embraced by almost all of the countries in the region. And with this expanded representation has come greater social inclusion in many nations. Latin America is by all accounts a crucible of innovative social policies, a global leader in conditional cash transfers that provide stipends for families that keep kids in school and get basic healthcare, as well as other programs to reduce extreme poverty. Combined with stable economic growth, those in poverty fell from roughly two in five to one in four Latin Americans in just a decade.

These and other changes have helped transform the basic nature of Latin American societies. Alongside the many still poor is a growing middle class. Its ranks swelled by 75 million people over the last 10 years, now reaching a third of the total population. The World Bank now classifies the majority of Latin American countries as “upper middle income,” with Chile and Uruguay now considered “high income.” Brazil’s and Mexico’s household consumption levels now outpace other global giants, including China and Russia, as today nearly every Latin American has a cell phone and television, and many families own their cars and houses.

The region still has its serious problems. Latin America holds the bloody distinction of being the world’s most violent region. Eight of the ten countries with the world’s highest homicide rates are in Latin America or the Caribbean. And non-lethal crimes, such as assault, extortion, and theft are also high. A 2012 study by the pollster Latino Barometro found that one in every four Latin American citizens reported that they or a family member had been a victim of a crime during the past year. Latin America also remains the most unequal region in the world, despite some recent improvements. Studies show this uneven playing field affects everything from economic growth to teenage pregnancy and crime rates.

These countries as a whole need to invest more in education, infrastructure, and basic rule of law to better compete in a globalizing world. Of course, nations also differ—while some countries have leaped ahead others have lagged, buffeted by everything from world markets to internal divisions.

Nevertheless, with so much potential, and many countries on a promising path, it is time to recognize and engage with these increasingly global players. And while important for the world stage, the nations of the hemisphere are doubly so for the United States. Tied by geographic proximity, commerce, communities, and security, the Americas are indelibly linked. As the United States looks to increase exports, promote democratic values, and find partners to address major issues, such as climate change, financial stability, nuclear non-proliferation, global security, democracy, and persistent poverty, it could do no better than to look toward its hemispheric neighbors, who have much to impart.

Follow her on Twitter @shannonkoneil.