The progressive governments and economic policy in Latin America

Abstract

In 2023, Latin America will complete a decade with the lowest annual increase in GDP since the 1950s. The average annual increase, according to ECLAC, from 2014 to 2023 is 0,8%, much lower than what was achieved in the last century, during the so-called lost decade of development. The weakness in the region’s GDP performance predates the COVID-19 pandemic and is explained by other reasons. To date, no changes have been observed that would allow establishing a modification in this trend. The process is consistent with the behavior observed in advanced economies and in China. Weak growth in advanced economies is related to the implementation of a monetary policy that uses an increase in the reference interest rate as a means to combat inflation. Statements from the Federal Reserve, the European Central Bank and the Bank of England indicate that the increase in the interest rates will continue in the coming months until a significant weakness in the labor markets is not observed. In Latin America, central banks boards share the same opinion. Together, they proceed by considering, as Friedman and his disciples argue, that inflation is essentially a monetary phenomenon. The monetarist argument is accepted, generating additional difficulties to advancing economic growth and even greater challenges in implementing economic policies that reduce social inequality and promote development. There is a dispute between the progressive governments in the region and other state bodies that hinder the process of economic policies advocated by those governments. In the current conditions, in addition to the restrictions on economic activity that the increase in credit prices implies, there are positive outcomes for those who make a living by investing resources in financial systems and instability in international financial markets is strengthened. Under these conditions it is very difficult to promote a project that considers expanding investment. Building the social process that allows activating the actors that participate in the modification of the capital formation process is a particularly difficult task, that to be carried out must advance in the construction of the conditions so that the production displaces rentiers. In economic policy, the dominance of monetary factors is not possible; the key lies in creating conditions for increasing production capacities.