Latin America is a vast macro-region, home of about 590 million people and experiencing a limited but sensible economic growth which is expected to reach an average of 2% in 2018. While the situation is improving in both economic and socio-political terms, the area still has to face numerous challenges.
During the Cold War, the US meddled in Latin American affairs to counter communist political forces that (often with Soviet help) wanted to take power and transform their countries into allies of the USSR. This was an application and reinterpretation of the long-standing Monroe Doctrine established in 1823, which considered the Western Hemisphere as an “American-only” zone to be protected from external influences: in practice, Washington supported (and event helped establishing) harsh military dictatorships in an anti-Soviet logic, that resulted in dramatic events like coups and repressions.
Alongside such political situation, the economic policies implemented by most South American states had poor results. The governments in the region traditionally applyed import substitution policies, whose objective was to favor the development of domestic industries by protecting them from foreign competition thanks to trade barriers and state subsidies. This favored the creation of large state-owned firms or subsidized private companies that enjoyed a (quasi) monopoly and were often directed by people belonging or close to the ruling elite; therefore, they were economically inefficient, unprepared to face foreign competition, and driven by corruption and political favors. At first, this system of rent-seeking companies worked, because they could benefit from large domestic markets that were protected from international competitors.
The initial effect of these policies was somehow positive (an average GDP growth by 2.5% between 1950 and 1973) but they ultimately resulted into a sensible economic slowdown.
As a matter of fact, the situation changed in the early 70s, due to a combination of factors. First, states applied a financial repression system by which they extracted savings from the agricultural sector to support the rapid industrialization one; and so farmers remained in povery. Moreover, governments faced high expenditures (subsidies to industries and social care programs); but had little tax income since the population was still too poor and industries paid less than they received as state aid. Additionally, corruption and political favors further contributed in putting the budget under strain. As a result, countries started accumulating debts. To counter this, they printed more and more money; but the increase, combined with the limited production of goods, resulted in soaring inflation. With the oil shock in 1973, international petroleum prices dramatically rose; and expenditures further increased for most Latin American countries who depended on energy imports (still, some oil exporters benefitted from it). At that point, the economic situation degenerated, and Latin America entered in the “lost decade” (1973-1987). The situation was made even worse by the fact that the US, to curb inflation, decided to raise its interest rate. This damaged the highly-indebted South American states, many of which had to bankrupt. The only solution would have been to open markets and export more; but due to decades of protectionist policies, firms were unable to sustain international competition. As a result, the average GDP growth dropped to 0.8%.
During the late 80s and early 90s, the situation started changing. With the end of the Cold War, South America experienced a gradual democratization process. In the context of the “Washington consensus”, the governments in the region implemented important market-oriented reforms to limit inflation, reduce the debt, attract foreign investments and technologies. Still, changing decades-long economic structures (and social problems) was difficult, and the results were not fully satisfactory; with peaks and falls. In 2007, Latin America sustained quite well the global financial crisis; whose effects were felt only later, resulting in a slowdown (even though the growth rate has remained generally positive).
Now, it appears the trend is moving again towards a new phase of development. However, the continent has many problems to solve, besides the need to continue its economic reforms. In particular, the social situation is troublesome. Considerable swathes of the population remain poor, and large favelas exist in the periphery of Latin America’s largest cities. Strictly linked to this problem, there is the issue of high criminality rates, notably among young people. As they are born in poor families that cannot afford sending them to school, they have no choice but to either work since childhood or become involved in crime. As a result, they do not receive adequate education and remain trapped in unemployment and poverty, originating a negative feedback cycle.