Latin America’s financial crises have lessons for all nations, including those in the Middle East. It is basically a crisis of confidence — the citizen’s confidence in his own country.
Most South American countries are rich in natural resources and opportunity. Yet they have been going bust since the 19th century and for the last 50 years have required regular financial rescues from both the International Monetary Fund and international banks who made the cardinal mistake of lending too much for too long.
What is it about South America that makes it incapable of standing on its own financial feet? There is certainly corruption, but not on a gigantic scale. There is also incompetence, massive waste and laziness. It has also been an unfortunate characteristic of most Latin American states, that when the going gets tough, the populace, rather than try and figure out how they can contribute to the solution, take to the streets and drive their politicians from power.
It was his adroit handling of the unstable dynamite of public opinion that gave the legendary Juan Peron and his wife Eva their relatively long political mastery in the Argentine. It was only after Peron was in exile in Spain that the truth behind his economic policies became clear. He had bankrupted his treasury and then printed money to keep a regular flow of sweeteners to his working class supporters.
At least Peron’s political skills offset his economic illiteracy. The average South American leader, with a few charismatic exceptions, has been too busy protecting himself from both his political friends and enemies, to realize how little he knew of state finance. Thus time and again, the countries of South America have blundered and collapsed into bankruptcy.
At the moment it is the Argentine, Brazil and Uruguay which that all need new hands out. Given that Brazil is on paper the sixth largest economy in the world, this financial failure is particularly incredible. The odd thing is that very rarely, in their endless reports on these ailing economies, do IMF officials and their like underline the fundamental problem that faces almost all Latin American countries — which is that South Americans do not invest in South America. The average citizen, with very good reason, distrusts his currency. As soon as he has spare cash he buys dollars, which he then puts into a foreign bank account, preferably beyond the jurisdiction of his own country’s Ministry of Finance. Local currencies, therefore, are notoriously weak.
Worse than this, expecting the next economic collapse in the near future, most locals do not bother to invest for the long term. Businessmen focus on the short term only, to limit their losses. This is not an entrepreneurial climate which creates jobs and wealth and allows the economy to grow.
The core difficulty is that South Americans, have little faith in any government to create lasting prosperity. This fosters a cycle of instability in which economic building blocks can never be raised very high. Maybe the harsh truth is that unless a country is prepared to invest in itself, why should outsiders?
This is a question that many other nations have to ask themselves.
