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Poverty in Latin America: Who Should Deal with the Economic Downturn's Haunting Legacy?
From Universia Knowledge@Wharton
Although new signs of recovery are encouraging international investment to resume, there is no doubt that the global economic crisis has left a trail of negative side effects in Latin America.
One of the most serious is increased poverty in the region. As the Economic Commission for Latin America and the Caribbean (ECLAC) — one of five regional organizations run by the United Nations to promote economic development — sees it, during the economic boom times between 2003 and 2008, poverty rates in the region fell 10 percentage points, from 44% to 34% of the population. That's changing, however. The Organización de Estados Iberoamericanos (OEI) expects the region's GDP to contract 1.7% this year, after growing 3% last year, while unemployment will also rise. According to ECLAC, all of this will have a negative impact on poverty levels across the region, where there are already more than 180 million poor people, and more than 70 million who qualify as "extremely poor" — that is, people who cannot meet basic needs for survival, such as food, water, clothing, shelter and sanitation.
Alicia Bárcena, executive secretary of ECLAC, told a gathering of politicians in Santiago, Chile, that the organization predicts some four million Latin Americans "will swell the unemployment lines this year, and it is likely that several million will return to poverty." She noted that the economic downturn abruptly ended six years of uninterrupted growth in the region, which enabled more than 35 million people to emerge from poverty. "That's why there is so much frustration," she said, adding: "It is clear that we will not return right away to the levels that we had before. Latin America's economic recovery will be slow, too slow."
Why is that the case? Karina Olivas, professor of economics at UPC, the Peruvian University of Applied Sciences, explains that given its history of economic dependence on the United States, Latin America has long been exposed to the cyclical ups and downs of its neighbor in the north. This time around, the downturn has had a big impact on the region's mineral-exporting nations, such as Chile, which had to deal with a spectacular drop in metal prices after a period of steady increases. The result has been a downward spiral, Olivas notes. "This has led to lower levels of governmental collections through taxes and mineral royalties, and has widened the effect of the crisis." But countries dependent on other types of exports have also been affected. Petroleum-producing countries like Venezuela, Mexico and Brazil have experienced a pronounced decline in their earnings from crude sales, which also suffered price declines on international markets, she says.
Beyond its commercial dependence on the United States, the region's unhealthy distribution of income is another factor that has led to sharply higher poverty, says Guillermo Paraje, professor at the business school of the Adolfo Ibañez University in Chile. Paraje notes that Latin America has the greatest inequality in social conditions in the world, affecting general access to education and training. As a result, "there are no strategies for developing adequate human capital." Instead, he says, Latin America is focused on exploiting natural resources and "when prices rise, everything goes well. But when prices fall, the region's economies suffer a great deal. If the pie is poorly divided and it also doesn't grow much, many people stay hungry." >>> Go to Full Story >>>