Latin America is a region that seems to be doomed to suffer from inflation and stagnation. Because? The answer is simple: because of the bad governments that do not know how to manage the economy. These governments are dedicated to making populist promises, scaring away investors with arbitrary measures and failing to respect the rights of businessmen. Furthermore, they are undisciplined and spend more than they take in, leading to deficits and debt.
Thus, inflation soars and growth slows down. But the worst thing is that there is always a messiah who says that he will solve everything by distributing wealth among the poor. And many believe him, not realizing that this only makes things worse. Latin America needs responsible governments that encourage investment, savings and production. Only then can he get out of the vicious circle of inflation and stagnation.
Why do we like saviors so much? I am not talking about those who rescue us from a fire or a shipwreck, but about those “strong men” who promise to free us from the evil Empire that oppresses us. They are the neighborhood handsome men, who shout into the microphone and hand out money like it was confetti. The people adore them, applaud them, idolize them. But these saviors are only kings of word, not deed.
All they know how to do is create gigantic bureaucracies, fight with the country’s creditors, break relations with its main trading partners and encourage capital flight. They are experts in winning votes, but not in improving people’s quality of life. No.o Create the conditions necessary to develop a prosperous, productive and sustainable economy in the long term. In the end, they leave us worse off than we were. Isn’t it time to stop looking for saviors and start looking for solutions?
Have you ever wondered why people complain so much about bad governments? It seems that everyone knows what the problem is: authoritarianism, bureaucracy and corruption. These three evils make our lives miserable and rob us of opportunities for progress. But do you know what the solution is? The solution is work, institutions and order. However, those are boring concepts and difficult to apply. So, the people adopt a more digestible and much simpler solution: change the government. That easy. You just have to remove the leader on duty and put the other. The other that promises heaven and earth, but that in the end turns out to be the same or worse than the previous one. And so on, to infinity and beyond.
The increase in prices in Latin America is an economic problem that needs an urgent solution, because it affects the well-being of millions of people and the health of the economies. The region pays for the most expensive food in the world, which worsens the condition of poverty and inequality. Some of the causes of this problem are: the dependence on the sales of raw materials, the loss of value of local currencies, distrust in governments, the increase in public spending, the logistical difficulties caused by the pandemic and the increase in Petroleum. The countries with the highest food inflation are Venezuela, Argentina, Haiti and Suriname, while those with the least inflation are Bolivia, Ecuador and Paraguay. Central banks have started to raise interest rates to curb rising prices, but structural actions are also needed to increase productivity, competitiveness and diversification of economies. Inflation is a threat to growth and development in Latin America, which requires a coordinated and rapid response to combat it.
Latin America is a very diverse region, where there is everything: the good, the bad and the ugly.. We cannot generalize or fall into stereotypes. There are countries that are doing things right and others that are doing things wrong. What can we learn from them? Well, the key is in the institutional framework, order and productivity. It is not a question of having more natural resources or more population, but of knowing how to manage and take advantage of them. For example, Venezuela and Argentina are cases of how not to run an economy. Both countries have suffered economic, social and political crises due to bad decisions and corruption.
On the contrary, there are other countries such as Chile, Uruguay and Costa Rica that have achieved greater development and stability thanks to more responsible and transparent management. An important factor is the role of the central bank. How professional, independent and disciplined are you? Do you act only on technical data? Or is it influenced by the ruler of the day?
The central bank and the public treasury are fundamental institutions for the proper functioning of an economy, but they are also irresistible temptations for politicians who want to spend more than they have. For this reason, it is necessary to celebrate that in many Latin American countries these organizations have been professionalized and empowered, which have contributed to reducing inflation and improving economic growth in recent decades.
However, not everything is rosy. The new leftist governments that have come to power in the region could signify a significant setback in this process. Some of them have already shown their desire to intervene in the decisions of central banks and public treasuries, or to appoint people related to their interests in their management positions. This could lead us to return to the old vices: statism, caudillismo and centralism.
Governments must respect the autonomy and professionalization of central banks and public finances, which are the best guarantors of economic and financial stability. With more political and social uncertainty, it becomes more difficult to attract investment and maintain the confidence of the markets.
It is not about defending central banks and public finances as if they were untouchable or infallible. It is about recognizing their key role in economic and social development, and demanding transparency, accountability and responsibility from them. In this way we can prevent them from becoming political instruments or sources of corruption. And so we can enjoy the benefits of a healthy economy, without having to pay the price of a crisis. Has Latin America managed to control inflation in times of crisis? No. But, some have done worse than others.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
It may interest you: