"There are two Latin Americas right now. The first is a bloc of countries—including Brazil, Argentina and Venezuela—that faces the Atlantic Ocean, mistrusts globalization and gives the state a large role in the economy. The second—made up of countries that face the Pacific such as Mexico, Peru, Chile and Colombia—embraces free trade and free markets.
For almost a decade, the economies of the Atlantic countries have grown more quickly, largely thanks to rising global commodity prices. But the years ahead look far better for the Pacific countries. The region as a whole thus faces a decision about (as it were) which way to face: to the Atlantic or the Pacific?"
"There is good reason to think the Pacific-facing countries have the edge. Much of the continent is "paying the costs of exaggerated protectionism and…irresponsible policy," said Alan Garcia, Peru's former president, at a recent conference in Mexico City".
"In 2014, the Pacific Alliance trade bloc (consisting of Mexico, Colombia, Peru and Chile) is slated to grow an average of 4.25%, boosted by high levels of foreign investment and low inflation, according to estimates from Morgan Stanley. But the Atlantic group of Venezuela, Brazil and Argentina—all linked in the Mercosur customs union—is projected to grow just 2.5%, with the region's heavyweight, Brazil, slated to grow a meager 1.9%".
"When China's economic growth was at its peak, the rising giant snapped up Venezuelan oil, Argentine soy, Chilean copper and Brazilian iron ore. But as China's economy has slowed, commodity prices have followed suit, hitting the Atlantic economies hardest. Brazilian Finance Minister Guido Mantega used to boast that his country's model of economic development would soon spread throughout the world. But Brazil—with its high taxes, red tape and tariffs—did little to prepare for the day when commodity prices might weaken".
"The free-trading side of Latin America is better poised to prosper, with higher productivity gains and open economies more likely to attract investment. The Pacific countries, even those like Chile that still rely on commodities such as copper, have also done more to strengthen exports of all kinds. In Mexico, manufactured exports now account for nearly a quarter of annual economic output. (The figure for Brazil: a paltry 4%.) The Pacific economies are more stable too. Countries such as Mexico and Chile enjoy low inflation and bulging foreign reserves.
On the Atlantic side Venezuela and Argentina are doing worse with high inflation,and weak government finances.In Venezuela, inflation is running above 50%. President Nicolás Maduro, the successor to the late populist Hugo Chávez, is doubling down on price controls to try to tame inflation. The fairly predictable result: widespread shortages of everything from new cars to toilet paper.
Argentina has also suffered from heavy-handed regulation. In Buenos Aires, the southern hemisphere's summer months have brought soaring temperatures—and regular blackouts. The government slapped price controls on energy prices back in 2002, hoping to help the poor overcome the 2001 financial collapse. But what was supposed to be a temporary measure became permanent. Electricity companies scared off by the price controls stopped investing in the city's aging electricity grid.
Even Brazil, which has had far more responsible economic management than Venezuela or Argentina, is starting to struggle with rising prices and a boom in credit that is starting to turn.
While the Atlantic bloc often views the U.S. with suspicion or outright hostility, the Pacific countries tend to have closer ties to Washington. "We set out to create the Pacific Alliance because we wanted to set ourselves apart from the populists," said Pedro Pablo Kuczynski, a former Peruvian finance minister. "We wanted a thinking man's axis."
Many of the region's young, the bulk of the population, have cast ballots for politicians such as Mr. Chavez, who offered painless growth by printing money. These youthful voters may have painful lessons ahead of them".
"In the end, the results from the different blocs will resolve the debates," Mr. Kuczynski said, "but bad ideas take a long time to die."
