President Biden’s U.S. stimulus package will be a godsend for Latin America’s economy
President Biden’s $1.9 trillion U.S. stimulus package will be a blessing for Latin America: It will help the region grow much more than previously expected this year.
But before anybody uncorks the Champagne bottle, there is a caveat: If the biggest countries in the region — Brazil, Mexico and Argentina — don’t implement market-friendly reforms to attract investments, it will be a short-lived uptick, and the region will return to economic stagnation in 2022.
That’s my conclusion after talking with several top economists from international financial institutions and private banks in recent days. Most expect the region to grow by about 4.5 percent this year, after a nearly 8 percent slump because of the pandemic last year.
Why? Phenomenal growth in the U.S. economy will spill over to Latin America, driving the region’s larger-than-expected growth. The U.S. economy is projected to grow by 6.5 percent this year — 3 percentage points more than previously expected — as result of Biden’s stimulus package and a faster-than-expected vaccine rollout, according to the Paris-based Organization for Economic Cooperation and Development. It would be the highest U.S. growth rate in decades.
“This will be very positive for Latin America,” Alejandro Werner, the International Monetary Fund’s director for the Western Hemisphere, told me. “The region will be growing more than originally projected.”
It will translate into more Americans buying cars that are assembled in Mexico, wines from Argentina, fruits from Chile, flowers from Colombia and minerals from throughout South America. It will also result in more American tourists visiting Mexico and Central America, and more Mexican and Central American migrants sending remittances to family in their native countries.
Mexico, whose economy is the most closely tied to that of the United States, will be one of the biggest beneficiaries. Mexico is expected to grow by 5 percent this year and would grow by much more if it weren’t for its populist government’s anti-business mindset.
Chile also will grow more quickly than expected. Its economy is projected to expand by 6 percent. Chile has vaccinated its population faster than any other country in the region, which should allow its economy to rebound sooner. Argentina and
Colombia are expected to grow by about 5 percent this year. Brazil, the biggest country in the region, is expected to grow by about 3.4 percent, economists say.
Granted, some fear that Biden’s stimulus package, the American Rescue
Plan, will unleash inflation and higher interest rates. That would make it more expensive for Latin American countries to borrow money and pay their foreign debts. It also would drive down the region’s latest economic forecasts.
But most experts don’t foresee a U.S. inflationary spiral. They say U.S. consumers won’t go on a massive spending spree, because there are still too many Americans who are unemployed or underemployed.
Another possible downside is a new wave of COVID-19, which could be caused by new variants of the virus. “If that happens, all bets are off,” Eric Parrado, chief economist of the Inter-American Development Bank, told me.
Alberto Bernal, the chief global strategist of XPSecurities, said that the real threat to Latin American economies will be populist governments that scare away investments. “This year’s growth of the U.S. economy will be the best possible news for Latin America, but the problems will come in 2022,” Bernal told me.
“Unless countries take advantage of the tail winds to make businessfriendly reforms, they will return to depressing growth rates in 2022.”
I agree. But it will be hard to ask governments to cut social spending amid the pandemic — and in the midst of an election cycle. There will be presidential elections in Chile, Peru and Ecuador, and legislative elections in Argentina this year; and presidential elections in Brazil and Colombia next year.
Instead, Latin American governments should think big, and think long-term. They should offer incentives to investors instead of scaring them away, and pass education laws to help millions of children make up for the school year they lost because of the pandemic. If they don’t take such steps, this year’s economic uptick will be a mirage, and the region’s growth once again will fall in 2022.
Don’t miss the “Oppenheimer Presenta” TV show at 8 p.m. Sunday on CNN en Español. Twitter: @oppenheimera