Brazil, Latin America’s economic disarray is a lesson

One year ago, we wondered if Brazil was another economy on the brink as increasingly unpopular President Dilma Rousseff opted for belt-tightening austerity policies in tandem with fiscal conservative Joaquim Levy as new finance minister. Since then, Levy left after the tandem failed to prevent Brazil from falling from investment grade to junk. With its worst negative annual economic growth in 25 years at 3.8%, Brazil was the worst performing G20 nation in 2015. Brazil’s difficulties have grown basically on the global failure of nationalist-leftist policies launched in the early 2000s with Venezuela’s Hugo Chavez, Argentina’s Kirchner couple and Rousseff’s predecessor Lula Da Silva.

Although these policies lifted millions out of poverty and brought greater geopolitical influence to these countries – Lula won Rio de Janeiro as the host city for 2016 Summer Olympics in 2009 and was named Time’s most influential people in the world in 2010 – they were unprepared for a reverse trend – with falling commodities prices, budgetary constraints, financial markets’ pressure and Fed’s rate hike – that would seriously jeopardize their initial but relative success. In absence of a more diversified economy and by proportionating public spending according to the so-called ever-increasing prices of commodities, Latin American countries couldn’t sustain any sharp change in global trends, never mind a 30% to 70% drop in commodities prices.

Furthermore, political instability – Rousseff still risks impeachment – corruption, crime and insecurity have largely blurred the whole picture, making these once-promising countries places where many foreign companies think twice before doing anything there. Building up a strong economy takes decades if not centuries, not years. 2016 may prove that the same is true for China whose growth – in every sector – has been impressive, yet China still needs a robust debt-low internal economy to remain a world-leading country in the next years. Otherwise, China may go through difficult times like Brazil’s, Venezuela’s and Argentina’s today.