Latin America is currently engulfed by economic downturn, rising crime, corruption scandals and populist elections. However, looking beyond recent events, there are reasons to be optimistic about the future. Building on traditions of global trade and natural resource abundance, the Americas will become the most stable hemisphere in the world. Moreover, state reform is pushing forward, the region is connecting to the world and cooperation between countries is gaining momentum.

Our observations

  • Recent elections in Brazil and Mexico, the largest countries in Latin America, brought populists to power. Moreover, both Andrés Manuel López Obrador (AMLO) in Mexico and Jair Bolsonaro in Brazil gained support by addressing anti-corruption sentiment. AMLO won both houses of Mexican Congress (the first time since 1997) and will thus become the strongest Mexican leader in decades. Instead of creating strong institutionalized anti-corruption bodies, AMLO’s anti-corruption drive is likely to target high profile cases that are more visible to his supporters and easier for the central government to tackle. This could trigger instability similar to Operation Car Wash (i.e. Lava Jato) in Brazil, an ongoing investigation of corruption at the highest level of Brazilian business and politics, which led to the imprisonment of former president Luiz Inácio Lula da Silva and a Netflix
  • China is gaining a foothold in Latin America. Between 2000 and 2013, trade in goods between Latin America and the Caribbean and China increased 22-fold, from just over $12bn to nearly $275bn. By way of comparison, the region’s trade with the world grew just three-fold over the same period. During the China-CELAC forum, Xi Jinping announced China’s goal of boosting bilateral trade with the Community of Latin American and Caribbean States to $500bn by 2025. By some estimates, China has invested more than $106 billion into Latin America in recent years, including $60 billion in Brazil alone. Chinese investment has so far gone primarily to agriculture, energy, and mining projects. But a growing share is now being channeled to manufacturing in sectors that generate higher-wage jobs and transfer much-needed skills to Latin American economies. Furthermore, China’s rising power vis-à-vis the U.S. means that its relationship with Mexico becomes increasingly important.
  • Historically, the U.S. has sought to prevent Latin American countries from becoming powerful enough to challenge U.S. influence in the region (i.e. its history of involvement in regime change). But that is changing. As Latin American countries grow more powerful, and since China is expanding into the region, the U.S. will take a more pragmatic stance. An example is a largely unnoticed provision in the new NAFTA which creates an anti-corruption framework for Mexico. Luis Alberto Moreno, president of the Inter-American Development Banka, argues that the U.S. has strong incentive to pursue a strategy of active re-engagement with Latin America. He proposes a vision of “made in the Americas” prosperity as a unifying agenda for the continent: if implemented, the U.S. could reassert its leadership among a group of countries that share its fundamental values.
  • The EU is negotiating free trade agreements with Mercosur (Brazil, Argentina, Uruguay, Paraguay) and the Pacific Alliance (Mexico, Chile, Peru, Colombia). The recent elections in Mexico and Brazil are not necessarily roadblocks towards advancing negotiations since AMLO wants to reduce Mexico’s dependency on the U.S. and Bolsonaro advocates liberal economic reforms.
  • Renewed interest of China and Europe into Latin America are part of the Modern Silver Way. The colonial Silver Way marked the emergence of the global economy, with trade routes between Manila, Acapulco, and Seville.
  • Latin America is also pushing ahead with internal integration. The two trading blocs Mercosur and the Pacific Alliance are negotiating a free trade agreement. Intracontinental infrastructure such as the Pacific Corridor Road and the existing Interoceanic Highway between Brazil and Peru will gain more momentum in the coming years.

Connecting the dots

Disappointing economic performance, corruption scandals, rising crime and populism dominate global headlines about Latin America. However, if we look beyond recent events, longer term trends brewing underneath the radar point to a brighter future for the region.
State reform in Latin America is pushing ahead slowly. While the 1980’s and 1990’s were characterized by an emphasis on (failed) economic policies, more recently much-needed institutional reform has appeared on the political agenda. It is useful to recall that Latin America has been known for widespread corruption for decades. All of this went unnoticed or untouched. But that is changing. In these young democracies, growing middle classes that are exceptionally frequent users of digital technology are driving reform. Indeed, the elections of populists reflect disgruntled middle classes. While AMLO and Bolsonaro may not lead to institutionalized solutions for corruption, they’re certainly products of anti-corruption sentiment. Furthermore, high profile cases such as Lava Jato and the ousting of corrupt leaders in Brazil, Peru and Guatemala indeed reflect strengthening institutions. These developments are hopeful ones. They will strengthen civil society, representative democracy, and the rule of law, which will create stronger institutions and the foundation for economic progress.
As state reform pushes ahead, the countries of Latin America are also growing closer together. The region has always been divided in several regions (i.e. Atlantic, Pacific, landlocked) that stand on equal footing (a geographic destiny the Spanish and Portuguese also ran into). As such, no clear regional power has emerged. Moreover, the colonial legacy of the region fragmented the continent further (and also created weak political institutions).

Contrarily, in pre-colonial times, the political order was more cohesive (e.g. the Inca Empire in the area of the Pacific Alliance: Peru, Chile). Now, through modern political institutions, technology and connectivity, region-wide integration is gaining momentum again (e.g. intracontinental infrastructure, trade agreements). First, the ‘Asian bloc’ of Latin America (the countries facing Asia and the Pacific) is integrating through the Pacific Alliance and the countries facing the Atlantic are integrating through Mercosur. Second, Mercosur and the Pacific Alliance are negotiating a Latin American free trade bloc.
Besides growing closer together, Latin American countries are increasingly connecting to the rest of the world. As in colonial times, the region is emerging at the center of globalization. In the 16th century, Mexicans believed to be at the center of the world, as Latin America was the place where Asia, Europe and the Americas met. However, the region’s colonial legacy fueled isolation, and the Pink Tide, a continental turn to leftwing governments at the start of this century, strayed away from openness to global markets. But as the Pink Tide has ended, Latin America is turning to more market-friendly policies. As a result, China, Europe, and the U.S. have all gained renewed interest in the region, which will only increase in the coming years.
Through state reform, internal integration, and connectivity to the rest of the world, Latin America will build on its traditions of progressivism, natural resource abundance (in a world of scarcity), and its future on the western hemisphere as the most stable region of the world, to become a dynamic region similar to the current rise of South East Asia.

Implications

  • Latin America’s abundance of water, energy, agriculture, metals and other resources will attract an increasing amount of countries to the region.
  • Tackling corruption through institutionalized bodies are the next frontiers for stable politics and inclusive economic growth, a transition the U.S. only completed in the 1930’s with the abolishment of the spoils system. The current political crises and corruption scandals are thus symbolic for the phase of Latin America’s development path. Its democracies are young and its middle classes growing: citizens are becoming more critical of the corruption which has characterized the region for decades. It is notable that Latin America has a relatively non-violent history concerning institutional reform compared to other regions (e.g. East Asia, Europe).
  • As the drive to tackle corruption is ever rising in Latin America, technology could increasingly become part of reform. Brazil’s state-run technology company Serpro recently launched a blockchain platform that hopes to reduce fraud in Brazil’s antiquated land titling system, which currently allows vast swathes of Amazon rainforest to be cut down for soy and beef farming. In Mexico, blockchain is also being explored to reform public administration and services.