Inflation, among challenges of the Latino governments of the ‘pink wave’

With the arrival of Luiz Inácio Lula da Silva to power in Brazil At the beginning of January, Latin America completed (for the time being) its political reconfiguration, this time leaning towards new ‘wave rose’ of progressivism, which enters this 2023 with an accumulation of economic challenges, among those, a fight against inflation, coping with the slowdown and fostering regional integration.

(See: What awaits the economies of Latin American countries in 2023).

In fact, this last aspect could represent a kind of measuring rod for the balance of these governments in the future, since, as different organizations and analysts have put it, a greater regional link could offer a joint solution to these economic and social challenges and thus avoid another lost decade.

“It is always striking that in Latin America, even though there are coincidences or harmony in ideological matters, they assume their challenges in a very diverse way, not always consensual.”, pointed out Gabriel Orozco, from the Simón Bolívar University.

Nevertheless, Although they may represent a crucial moment for integration, These leftist governments are more heterogeneous and arrive, in some way, weakened at this beginning of the year, as the teacher maintains Mauricio Jaramillo, from the University of Rosario.

(See: Colombia would continue with one of the lowest minimums in the region).

“I don’t think you can talk about a block or a wave because they are divided, even weakened, like Alberto Fernández in Argentina. I would say that what there is is more of a coincidence. They arrive, I think, with a lot of expectation, in the case of Lula, who is expected to be able to repeat what was done in social matters, but the same thing happened with Petro and Boric (…) And, when faced with some issues, they are heterogeneous, For example, with the situation in Peru, where we have seen a Chile that has moved away from the position taken by Mexico, Bolivia, and Colombia. Argentina was much more moderate than Colombia or Mexico, which were more insistent on the political rights of Pedro Castillo”, Jaramillo pointed out, in turn.

The truth is that, as you remember Theodore Kahn, Control Risks analyst for the Americas, Macroeconomic projections estimate growth that does not exceed 2% in the main economies of the region, while there will also be “worrying debt levels and deficits, especially in Brazil and Colombia.”

“Governments will face pressure to boost growth and mitigate the effects of inflation, especially for the most vulnerable households. However, you have to find a way to do this without making your tax situation worse. This requires, in many cases, making structural reforms or removing subsidies, such as those for gasoline, so that spending can be more efficient and targeted. But doing this is difficult politically”, pointed out the analyst.

After reaching historical records, driven by various shocks such as the pandemic or the war in Ukraine, inflation in Latin America began to yield slightly, perhaps with greater emphasis in the second half of 2022, although insufficient to leave record levels behind, although this slowdown is expected to deepen gradually during a good part of 2023, according to ECLAC forecasts.

(See: The most devalued currencies in Latin America in 2022).

Inflation in Latin America and the Caribbean as a whole would be around 6.4% for December 2022, similar to the 6.5% that the entity has for December 2021. However, the gradual correction would take it to 4% for December 2023, according to the agency’s forecasts published on December 15.

Now, regardless of the forecasts, which ECLAC itself acknowledges that they depend on multiple external factors, prices for consumers in the region closed with a significant rise in its main economies, with increases of more than 10% in cases such as Colombia or Chile. , not counting the usual exceptions of Argentina and Venezuela.

Carrying out a survey among the countries of the region, Brazil, the main economy, has experienced a gradual deceleration of its inflation, to 5.90% in November, thanks to a quick response from its monetary entity that raised its interest rate to 13 .72%, which for now is not expected to moderate.

Mexico, The second largest economy in the region, has also experienced a gradual slowdown, despite the fact that in the last bulletin it rebounded slightly, closing November with a record of 7.8%. Entities such as the country’s central bank, as well as Credit Suisse and Citigroup expect the cost of living to continue to slow in 2023.

(See: What’s next for countries with the lowest and highest inflation in Latin America).

Colombia and Chile, Two of the countries with the highest economic growth in recent years have experienced unique inflation records by the end of 2022, which may have a gap of six or seven points compared to the data for Mexico. Thus, Bogotá closed last year with inflation of 13.1%, while Santiago did the same with 12.8%, both the highest, without counting the exceptional cases.

For their part, economies such as Peru or Uruguay recorded inflation records of 8.46% and 8.29%, respectively; while Bolivia and Ecuador they had the lowest, with 3.12% and 3.74%, respectively.

Although the annual data for 2022 has yet to be published, inflation in Argentina continues to skyrocket, approaching 100% annually, after the record of 92.4% seen in November. For its part, the Venezuelan Fiscal Observatory, an independent body linked to the neighboring country’s opposition, places inflation last year at 305.7%, involved in a spiral that is leading Venezuela to hyperinflation again.

Inflation.

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Among the other challenges that the region will face in 2023 is political and economic integration, insertion into global value chains, environmental synergy, and the much-mentioned balance between the generation and distribution of wealth.

for the teacher Gabriel Orozco, among the great challenges arethe generation of employment, the link in international markets to global value chains”, given that capacity of Latin America as a differential factor. Agribusiness, as Colombian President Gustavo Petro proposes, is painted as a good idea, although “It is a process that still looks very slow”.

On the other hand, according to Kahn of Control Risks, the Boric-Petro-Lula axis, in Chile, Colombia and Brazil, respectively, “have interesting opportunities to position themselves globally as defenders of the environment and attract green investments, although they will have to define public policies that create good conditions, beyond the pro-environmental discourse”.

(See: How do they live? More than 34% of those over 65 have no income).

Another challenge, as Mauricio Jaramillo puts it, is in “find what progressivism could not achieve 20 years ago”: find the balance between the generation and distribution of wealth, as well as in the environmental issue, which in that period was not important for the discourse and now it is.

“Much is also expected of what Lula can do with Celac, it is expected to reactivate Unasur or for Venezuela to return to the mechanisms. So, in terms of integration, after the conservative governments were very cold with it, the challenge is to relaunch the process in the middle of a region that looks more internally and not regionally”, Jaramillo pointed out.

ROBERTO CASAS LUGO
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