The ritual publication by the leading multilateral organizations, think tanks and investment banks on the macroeconomic outlook for Latin America and the Caribbean which, without being too dramatic, puts an end to the era of growth rates above the region’s potential, has inevitably attracted the interest of policymakers, investors and the public in general.
Aside from the always passionate topic of whether the prediction of a regional growth rate in 2014 of around 2.5% will or will not be achieved in the next 12 months, the focus should really be on a very different fundamental question: how much of what has recently been achieved, in terms of welfare and institutional quality, can be preserved if the continent's economies effectively return to growth rates consistently lower than in the recent past?
For some, the answer is simple: this reversal is impossible because the return to a low growth scenario is simply not a very credible assumption.
Why? For some analysts, the lessons learned in the past from crisis management, the stimulus of expectations of a better life for the new middle classes, and the changes in the international economy have permanently improved the lot of the continent.
For other more proactive observers, the shocks looming on the horizon will simply have cyclical effects whose impacts will be mitigated using the macro-policy spaces that the continent supposedly has.
In short, pessimism is not an option for any of them, although for different reasons.
The situation is very different for another broad group of authorities and analysts. These doubters are kept awake at night by the possibility that, blinded by the exceptionally favorable international environment, we have passed through a decade of overestimating the potential growth rates of the continent and, therefore, the sustainability of its social achievements. They fear that we have allowed arrogance to take over and that we are living in utopian denial of reality.
Their concern is understandable given the imminence of monetary normalization in the United States, the growing volatility of international capital markets, and doubts about the sustainability of China’s growth rates and the impact on raw material prices.
For them, complacency is not an option. They argue that the specter of a potential crisis could spur a stronger, more confident Latin American society into changing economic direction and pushing through the reforms needed to improve productivity and long-term growth. The macro need would open the way to reformist virtue.
Moreover, the critical mass of convictions and experience needed to attack structural problems at their root, eliminate bottlenecks and create the economic climate needed to release the growth potential of the continent already exists.
If history teaches us anything it is that the future of the continent cannot easily be captured in such perfect and seamless views. Reality is always more complex than the scenarios that try to capture it.
For some countries it is highly likely that the cyclical impacts will be less—even positive, as might be the case of Mexico and Central America—and yet capable of generating the necessary social consensus, with no need for crisis, for the productive reforms to take place.
For other countries, the cyclical slowdown and absence of political spaces could lead not to reforms, which improve equity and resource allocation, but to policies that are much more unsustainable and which have to be reversed through draconian adjustments and costly restructuring. At the end of the day, rushing ahead is also a tradition of global and continental economic policy.
Finally, as shown in the recent Inter-American Development Bank report "Global Recovery and Monetary Normalization: Escaping a Chronicle Foretold ?” it is not at all obvious that the short- and long-terms are so clearly disconnected as is sometimes claimed.
For example, although the fiscal and monetary space need to mitigate external shocks exists, the way it is used has an important impact on the potential growth of the economy. The most obvious case is the increased structural rigidity of public expenditure in some countries of the region as a result of the countercyclical policies implemented after the Great Recession of 2008.
Although in most cases these policies have been useful for maintaining short-term growth, their lasting outcome has been a dense structure of subsidies with impacts on incentives and levels of national saving and, hence, on the potential growth of economies. How they are to be adapted is a new need that swells the list of pending reforms and complicates the political economy of structural changes.
This diversity of situations and scenarios reveals the heterogeneity of the continent and the inadequacy of continuing to base judgments about its future on ideas—in the worst of cases, on events—tied to the supposed moods of countries and analysts.
The future of Latin America does not depend on whether one is optimistic or pessimistic, but on the institutions, consensus and policy directions that are really possible. This is not about wanting. It is about being able. And not all countries want to, and not all can.
The region has generally made spectacular progress in managing its short-term macroeconomic policy and has reduced its historical vulnerabilities with an intensity unimaginable a decade ago. This adds credence to the assumption that a good number of countries will in fact be capable of managing the cyclical setbacks that may develop from material changes in the international economy.
However, despite the progress made, the only thing that can make social and economic progress irreversible is for a majority of a society to continually demand improvements in education, infrastructure, social equity and institutions and to understand that there are no shortcuts, but there are exclusive priorities. Building that certainty is what separates the continent from the 5% - 6% growth required to meet the future expectations of its citizens.