Latin America After the Crisis: The Social and Political Agenda for Recovery

On April 19, 2010, the Latin American Program and the World Bank convened a seminar to explore the political and social factors that help explain how Latin America emerged from the 2008 global economic crisis as strongly as it did, and to consider next steps for development and social cohesion. The event featured former Uruguayan President Tabaré Vázquez, Special Advisor to the project Diálogos para el Desarrollo y la Cohesión Social (Dialogues for Development and Social Cohesion), co-sponsored by the World Bank and Chile's Corporación de Investigaciones Económicas para Latinoamérica (CIEPLAN).

Augusto de la Torre, Chief Economist for Latin America and the Caribbean Region at the World Bank, underscored that, in contrast to earlier economic crises in which external shocks were magnified in Latin America, most countries in the region emerged from this crisis strengthened, not weakened. Having built strong macroeconomic and financial policy frameworks, the region was equipped with "shock absorbers," De la Torre said. The question now was how to sustain the policies that had contributed to this resilience and understand the political dynamics which had made those policies possible.

In further distinguishing between the past and the present, De la Torre observed that labor markets in Latin America had also adjusted differently. In prior crises, countries experienced a sharp decline in real wages (particularly through rising inflation) as well as rising unemployment and informality. By contrast, in 2008 the rise in unemployment was not as great, nominal wages went up, and informality even declined in some places. Contrary to expectations, Latin American countries did not adopt more protectionist policies, a development, De la Torre said, that had more to do with political factors and "the way in which societies make decisions."

De la Torre said that economic growth constituted "the missing link." While governments had adopted better social policies to reduce vulnerability, they had yet to get societies behind a strong growth agenda. Standards were set low—for 2-3 percent growth, rather than 6-7 percent—and politicians were unable to motivate a drive for strong investment, savings, and productivity.

Former President of Uruguay Tabaré Vázquez praised the Diálogos initiative for focusing on people's daily lives and the experience of society as a whole. He also described it as "healthy" that the program is designed as a dialogue and not a speech.

The Global Financial Crisis
Vázquez emphasized that while the 2008 economic crisis originated in developed countries, no one was immune from its effects: though Latin American countries were not to blame, they all suffered the consequences to a greater or lesser degree. That said, looking to apportion blame was not productive; rather, Vázquez said, Latin Americans must take responsibility for their own part in creating societies' ills and engage in self-criticism that will lead to improvements in the lives of average citizens.

Lessons from Uruguay
Unlike most other Latin American countries, Uruguay's economy grew modestly in 2009. Vázquez attributed the crisis' minimal effect on the country to structural reforms, prudent fiscal management, professional rather than political management of public debt, the accumulation of reserves, and a commitment to economic growth with social justice. Poverty in Uruguay had dropped from about a third of the population to approximately 19 percent. Public investment in education, including the provision of a free laptop and internet service to all students and teachers, was aimed at creating equality of opportunity and highly qualified human resources. Establishing the basis for future growth was not only an accomplishment of the government, but of the political system, private sector, social movements, and all of society. Moreover, he emphasized, Uruguay's achievements would have been impossible to obtain without democracy.

Development and Social Cohesion
Vázquez contended that development has no end point; although it may seem "slow and boring," it should be viewed as a path involving transparency, austerity, and responsibility. He outlined four fundamental components of development and social cohesion:
1. Strategic thinking
Societies and nations must look 20-50 years to the future. It is important that governments not improvise, but to be responsible and prepared.

2. The nature of development
Development is gradual and requires political and social support. Governments must have the capacity to articulate and construct majority support for development strategies to be viable.

3. Regional identity
Regional integration should strive to benefit all Americans— North, Central, and South. There have been too many summits, declarations, and meetings, but the peoples of the region do not see tangible results. Truth, he said, "is not what the politicians say, but what the people live."

4. Free trade
"Protectionism is to trade as authoritarianism is to democracy." Vázquez noted that all Latin American countries have been admonished to open their economies and eliminate quotas and subsidies. Now, the region demands the opportunity to sell the products of its labor on the international market. Protectionist barriers, however, prevent the region from competing equally.

Calling democracy the "nucleus of development," Vázquez reminded the audience that democracy requires citizenship, which he believes should be recovered and strengthened with "a system of human rights and responsibilities." The region has made important advances in democracy, economic growth, and reducing poverty, he said. To continue this progress, Vázquez emphasized the need to "produce more, better" and to compete internationally in conditions of equality.