ECLAC Proposes Structural Reforms to Latin American Economies

Commodities are sweet little things in Latin America. Indeed, Brazil should be excited then, because recent weather data helped forecast a strong coffee crop and high prices for 2013. For Brazil and its neighbors, the past decade has seen a thumping commodities boom thanks to China’s appetite for industrialization. One might think the region’s leaders would be smiling and kicking back, enjoying the good old decade.

But they are not.

Instead serious faces worn by leaders and representatives of Latin American and Caribbean states turned toward El Salvador, where a dramatic pivot in economic policy for the region was discussed last week. The reason for serious attention is because ECLAC, a UN economic policy organization, introduced a proposal detailing a range of structural changes to Latin American economies that intend to defend against looming external business cycle shocks with new productivity reforms, which aim to bring high-value-added industry to the region. The idea here is to close the region’s painfully wide wealth gap.

Soy, oil, minerals and coffee, it seems, are no longer hot kitsch.

“History suggests that developing countries that have succeeded in converging with the more advanced countries have done so through the accumulation of technological capacity, innovation and knowledge, not on the basis of rents from natural resources,” ECLAC told Reuters.

ECLAC (Economic Commission for Latin America and the Caribbean) holds a summit every other year, where its representatives discuss economic policy for the region. This year, the structural proposal emerged from a concern that over-specialization on low-productivity commodities and emphasis on import-substitution action has put a drag on the region’s economic performance dating back to the 1970s.

ECLAC means well. And its proposal sounds good in theory. Latin American states wrestle with wealth inequality and a new model for encouraging productivity and capacity building could contribute to closing the gap between rich and poor. One of the region’s biggest challenges, however, is how to agree on a proposal like this. For a roster of states obeying increasingly polarized political postures, there will likely be a handful of states, such as Brazil, Colombia, Chile and Mexico, that have an appetite for the UN’s new economic proposal. Others however, like Venezuela, Cuba and even Argentina, might just as well chew it up and spit it out as if it were a bitter seed.

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