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IMF taps into South American youth to get economies back on track

IMF taps into South American youth to get economies back on track Anthony Harrington

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In preparation for its annual conference on South America, held in Lima, Peru, the International Monetary Fund (IMF) has launched a 500 word essay competition for graduates and undergraduates at South American universities. Entitled How to build a better future, the results should be fascinating.

In the words of the IMF:

"The contest focuses on the challenges that the region's youth consider pressing for future generations and seeks their views on possible solutions."

It would not be at all surprising to find that across the collection of responses that the IMF is sure to get lie solutions that South America's politicians would do well to take on board. Anyone who has seen "vox-popping" interviews with students from South America could not fail to be struck by how articulate and passionate the country's youth are about the issues and challenges faced by their respective countries.

In the spirit of the competition, here's my back-of-an-envelope view of some of the road blocks to progress across South America. A good starting point is a paper from the Brookings Institute, appropriately entitled Key economic and social challenges for Latin America: Perspectives from Recent Studies. Not surprisingly, wrestling with the problems of South America is pretty well traveled ground and is a topic that analysts and academics from the World Bank and other august institutions have taken up again and again. For the Brookings Institute authors, the four big issues are:

1) inequality
2) weak secondary and tertiary education
3) a business climate trammeled about with idiotic bureaucracy (my description, not theirs)
4) a weak competitive position globally as far as export trade is concerned (excluding raw materials, of course)

Inequality is such a huge theme and so pressing that it impacts all the other issues in one way or another. The legacy of rapacious colonialism on the continent, along with the capture of large swathes of industry and banking by dynastic wealthy families, has created a marvelous dynamic for populist politicians to tap into. As a result the curse of democratic advanced economies, where politicians can garner votes and come to power by making unaffordable welfare and pensions promises, is manifest in exaggerated form across South America. It shows up most obviously in the half-witted and ruinous socialism of Venezuala but is also a powerful factor in more progressive and comparatively vastly more stable countries like Chile, Argentina and Brazil.

There is an excellent paper by Jorge Castaneda on the Foreign Affairs website written back in 2006, which ponders the "leftward swerve" in South American politics:

"Just over a decade ago [i.e. 1996/97] Latin America seemed poised to begin a virtuous cycle of economic progress and improved democratic governance, overseen by a number of centrist technocratic governments [...] At the invitation of President Bill Clinton, Latin American leaders were preparing to gather in Miami for the Summit of the Americas, signaling an almost unprecedented convergence between the southern and northern halves of the Western Hemisphere."

By 2006, all of that was in reverse, Castaneda argues:

"Latin America is swerving left and distinct backlashes are underway against the predominant trends of the last 15 years: free-market reforms, agreement with the US on a number of issues and the consolidation of representative democracy"

The overriding problem for South America, then, would seem to be to find ways of getting representative - and non-ruinous - democracy back on track. This is a hugely complex problem given current levels of inequality, since redistributive policies and "progressive taxation" (the socialist politician's favorite remedies for inequality) tend to have seriously adverse impacts on the business environment. And when you overlay on top of this near-intractable problem, the additional issues of indigenous rights and the need for policies to mitigate climate change, to name but two, solutions look very difficult to come by.

However, the IMF is all about balancing what you wish for against what you can afford as a country. So its close involvement with South America, and its continued efforts to inculcate habits of realistic and practical thinking among both the political elite and the population at large, may bear fruit over the medium to long haul. On the positive side, of course, South America has a huge amount going for it. Vast mineral wealth, great agricultural wealth and an increasingly well-educated population, plus a vigorous entrepreneurial spirit all provide grounds for optimism. We shall see...

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Further reading on South America:

Tags: democracy , IMF , Inequality , Latin America , progressive taxation , socialism
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