beyondbrics

By Valentina Romei and Henry Mance

Argentines are typecast as Latin America’s aristocrats: venerable, cultured and with their best days firmly behind them. The country’s golden age – when Buenos Aires was the Paris of South America, and western money poured into the pampas – ended a century ago. The new Latin America supposedly lies elsewhere: Brazil, Peru and Colombia.

Not so fast. As our chart of the week shows (click ‘more’ to see it), Argentina is the continent’s richest country – and one of its three fastest-growing since 2000. The two top performers are equally surprising: Uruguay and Paraguay. Meanwhile, Brazil and Mexico – whose economies were roughly the same size at the beginning of the decade – are on very different paths.

The chart shows GDP per capita in 2010 as a proportion of that of rich countries (horizontal axis), and how that proportion has changed over the last decade (vertical axis). Most of the countries are above the zero line, showing their they have closed gap with advanced countries, although no Latin America country is even half as rich per person as the advanced countries’ average.

Sceptics might attribute Argentina’s strong performance to the 2000 baseline and the country’s financial crisis (which also hit Uruguay heavily). But in fact the crisis hit in 2001-2 – making the achievement even more impressive. For Argentina and Uruguay, commodity exports to China have boosted growth, while Panama has its banking system to thank.

Brazil’s growth has been less spectacular, but nonetheless solid, interrupted only by a mild recession in 2008-9. The country’s economy is now nearly twice as large as that of Latin America’s second-largest economy, Mexico.

Indeed, for Mexico, the picture is rather depressing. It is one of three Latin American countries – Belize and Guatemala are the others – whose per capita wealth has shrunk over the past decade. It was the worst hit by the recession, along with Paraguay, El Salvador and Venezuela. On average, Mexicans remain as rich as Uruguayans, and around a quarter richer than Brazilians. But, unlike Argentina, the country’s inherited advantage is dwindling – amid competition from Chinese manufacturers and a slowdown in the US.

One interesting point lies beyond the chart’s reach: catch-up potential. According to current wisdom, on a global scale, poor countries are well placed to catch up with rich ones. Can the same be said regionally? Over the next decade, will poorer countries in Latin America grow faster than richer ones?

Currently, some countries – like Colombia and Ecuador – have average incomes of barely 25 per cent of the rich-world average. That could give them competitive advantages over others – like Chile and Argentina – whose ratio is closer to 40 per cent. But the effect might not be significant, given that Latin American economies rely heavily on commodity exports, where labour costs are not a key factor. Moreover, governance and infrastructure problems may deter investment in poorer countries.

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