Fraga and Ortiz spearheaded a working group on Latin America within the Group of Thirty (G30), an organization consisting of central bankers, commercial bankers, and academics established in 1978. Their recent report, titled “Why Does Latin America Underperform?”, was published this month (link: report). Velasco served as the project director for this report.
In their report, the authors likened themselves to doctors diagnosing a patient, acknowledging that there is no universal remedy due to the unique characteristics of each country. However, they did identify four distinct “low-growth syndromes” that affect different countries.
The first syndrome, known as endemic macroeconomic instability, plagues countries such as Argentina, Ecuador, and Venezuela. The second syndrome impacts a group of relatively stable countries including Chile, Colombia, Peru, and Uruguay, which suffer from “market and government failures” and a scarcity of economically viable private investment projects. Mexico grapples with the third syndrome, characterized by issues like productivity misallocation, regional disparities, narcoviolence, and institutional deterioration. Brazil experiences the fourth syndrome, marked by chronic budget deficits, high real interest rates, low national savings, and additional political challenges like inequality, populism, and polarization.
These four maladies have led to slower economic growth in Latin America compared to a set of peer countries with similar per capita incomes. The report identifies those peers as Bulgaria, the Czech Republic, Egypt, Hungary, Indonesia, Malaysia, the Philippines, Poland, Romania, South Africa, Thailand, and Turkey.
The issue of poor governance pervades Latin America. The report highlights the unique combination of presidential governance (as opposed to parliamentary governance as seen in Britain) and a proportional election system (in contrast to the majoritarian electoral system in the United States) in many countries in the region. As a consequence, presidents remain in power even without a working majority in the legislature, which is often the case due to seat allocation based on party vote totals. This helps explain the ineffectiveness of politicians highlighted by Velasco.
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