Economic Development in the South American Region Essay

Introduction

The South American Region is considered to be one of the most actively developing regions in the world. Following after developed European countries and the countries of North America South America is increasing its economical potential practically every day. The stereotype of close-to-the-Third-World is being destroyed by amazing economic figures that indicate that South American countries have long ago entered the world market with a perspective of mutual benefit for national and global economies (Bulmer-Thomas, 2003).

Main body

The end of the 20^th century was crucial for many economies in the world because of the increase in global processes and especially the globalization of economies. Many of the African countries haven’t made a single step towards entering the global economy. On contrary, the globalization has pushed them back into political and economic depression. But South American countries on contrary strengthened their positions in different markets of the world creating considerate competition for many of the “giants” in the global economy. South America is now drawing a lot of investment flows. According to Foreign Policy magazine, South American together with some North-Western countries is now actually becoming the most favorable investment market. Among the South American countries, there are their own leaders that lead the way and dictate the economic climate in the region (Keen, 1999).

Mexico. The economy of Mexico stands out among the others in the region. In 2006 it was considered to be the 15 largest in the world with a GDP of 1.134 trillion US dollars and is measured in purchasing power parity. The Mexican market is considered to be free and oriented toward export. It is getting closer to the upper-income country and the highest income per capita in the Latin American Region, in market exchange. It is also a member of the Organization for Economic Co-operation and Development. This fact makes it the only Latin American country member. The official statistics are displaying the poverty rate at the level of about 3-4 %. But more up-to-date figures show that about 40 % percent of the population shares a small part of 11 % of national income. Those people live below the poverty line (Dominguez, 1994). The standard of living in Mexico is much lower than in developed or developing countries of Europe. The minimum wage is 40 pesos per day, about £2.80, or $4 US Dollars.

Mexico is one of the worst in Latin America in terms of the income distribution.

GPD per capita was on the level of 10,600 USD in 2006. And official inflation rate was at the level of about4 percent, which is considered to be a positive figure if the statistics are correct (Dominguez, 1994).

Peru. At the end of the 20^th century, the country of Peru has undergone amazing economical growth which was started off by a huge amount of foreign investment, almost 46% of which was related to the privatization program. The result of the century’s strongest El Niño weather phenomenon, global financial turmoil, political instability, a stalled privatization program, increased government intervention in markets, and worsening terms of trade was stagnation in 1998-2001. President Alejandro Toledo implemented a recovery program after taking office. Nonetheless, political uncertainty led to a GDP growth of 0.2% in 2001. The Lima Stock Exchange general index fell 34.5% in 2000 and 0.2% in 2001. Inflation remained at record lows, registering 3.7% in 2000. In 2001 Peru had stated a deflation of 0.1%. The budget deficit rose quickly from 1999 to 2000 and amounted to about 3.5% of GDP. This was caused by increases in governmental salaries, elections in 2000, national debts payments, and a considerable decrease in tax revenues. Peru’s stability brought about a substantial reduction in underemployment, from an average of 74% from the late 1980s through 1994 to 43% in the period of 1995-1996. But these rates began growing again in 1997. The poverty rate in 2001 was on the level of 54% and the quantity of extremely poor people reached 24%. In 2004 these figures had been 48% and 18% correspondently. The unemployment rate in 2006 was held at the level of 7.7 %. The estimated inflation rate for the year 2006 was about 1.14%, which made it the lowest in the region. The industrial production growth rate was 6.6% (2006 estimated) (Bulmer-Thomas, 2003).

Chile. The economy of this country is considered to be dynamic and market-oriented with a high level of foreign economical activity. During the early 1990s, Chile’s reputation as a role model for economic reform was strengthened when the democratic government of Patricio Aylwin – which took over from the military in 1990 – deepened the economic reform initiated by the military government. The official figure of growth in real GDP estimated 8% during the period 1991-1997, but fell to half that level in 1998 because of tight monetary policies implemented to keep the current account deficit in check and because of lower export earnings – the latter a product of the global financial crisis. But the economy of Chile has recovered from the crisis and now the figures are estimated to reach the initial level of 7-8%. In 2006, Chile became the country with the highest nominal GDP per capita in Latin America. But the economic income distribution in Chile has been extremely poor. Chile ranks 80th among the countries on the list of the income distribution, being the fourth in Latin America (behind Brazil, Paraguay, and Colombia) and ranking behind much poorer African countries such as Zambia, Nigeria, and Malawi. This is a negative result because this indicator is really important to evaluate the economical condition of the country. The GDP of Chile was about 212.5 billion dollars in 2006, which amounted to a per capita purchasing power of 12.9 thousand dollars. The percentage of the population below the poverty line was about 18.2.

The important inflation rate was generally positive and amounted to about 2.6% in 2006.

The general unemployment rate was officially leveled at 8%. The numbers of industrial production grew from 5.5% in 2005 to 7.8% in 2006 (Bulmer-Thomas, 2003).

Brazil. As many other countries such as Chile and Peru has a free market and export-oriented economy. Nominal Gross Domestic Product once again surpassed a trillion dollars, and 1.8 trillion in purchasing power parity, making it the ninth-largest economy in the world and the largest in Latin America. Its nominal per capita GDP has increased again to $6,000 in 2007. 3/5 of the South American economy’s industrial production accounts for Brazilian industry. The country’s scientific and technological development is argued to be attractive to foreign direct investment, which has averaged S$ 20 billion per year in the last few years, compared to only US$ 2 billion/year last decade. According to these figures, the attractiveness of Brazil as an investment opportunity has grown remarkably. Since 2003 the poverty rate decreased from about 29% to 17-18%, which is a great achievement. Although Brazil and Chile remain highly unequal societies, Brazil is already just behind Chile in terms of reaching the MDG poverty reduction goal. The unemployment rate is stable for a certain amount of years and stays at the level of about 10%. The inflation rate is on average in the region and is about 3.1% (Chasteen, 1993).

Venezuela. The economy of this country mainly depends on oil production, but there have been numerous tries to redirect the economical development into the industrial stream, these efforts were not successful. From the 1950s to the beginning of the 1980s the Venezuelan economy was one of the strongest in South America. This mainly was caused by high oil prices. The economic strength also attracted a lot of immigrants, which increased the number of the active labor force. When the oil prices collapsed in the middle of the 80ies the situation changed and the economy of Venezuela suffered severe damage. But the price of oil grew again in recent years, which again has strengthened the economy. Its GDP is growing with an increase of 10 percent annually. In the 1950s, during Jimenez’s dictatorship, Venezuela enjoyed remarkably high GDP growth, so that in the late 1950s Venezuela’s real GDP per capita was close to West Germany’s. The democracy establishes after 1957 did bring out anything positive in the economy of Venezuela: on the contrary, in some years GDP contracted. In 2002, the Venezuelan economy, as measured by Gross domestic product (GDP), contracted by 8.9% compared to 2001. The petroleum sector, which contracted by 12.6% in 2002 as compared to 2001, was negatively affected by a decrease in exports of petroleum products resulting from adherence to an OPEC quota established in 2002 and the virtual termination of exports as a result of a national strike by forces intent on removing Chavez from power. The nonpetroleum sector of the economy contracted by 6.5% compared to 2001. This situation was accompanied by a significant devaluation of the Bolivar during 2002, which resulted in an accelerated inflation rate. The inflation rate, as measured by the CPI, was 31.2% in 2002 compared to 12.3% in 2001. This indicates problems with the economical development of Venezuela and its dependence on oil export. The poverty rate is expected to drop in closing years to about 30%, but now it is on its one of the highest levels of 40-48% (De Soto, 2002).

In a conclusion, I would like to give a small comparison of all of these countries. The condition of Venezuela is the most unstable because the country depends too much on oil and on governmental political decisions. Brazil is not that dependent on the social factor when building up its economy, because it has reached the level when the economy is the main driving force of the political and social changes. It was reached by reforms in the economy, creation of a strong industrial base to support non-production economical areas. And we can see that the result is amazing. In Chile, the democratic government played a huge role in the development of the economy, because democracy is socially oriented and to reach social prosperity economy has to be brought up to the maximum. Socio-economical indicators like unemployment and inflation are one of the lowest in the region. Peru gave an example of how government shouldn’t act during the economic crisis. The county is developing with the help of investment funds. The good thing is that practically only important factor that can negatively affect the economy in Peru is nature and its disasters, of course together with governing. The Mexican economy is supported a lot by the North American capital. Its geographical position and closeness to strong countries like the USA and Canada makes the process of global integration a lot easier (De Soto, 2002).

Conclusion

The main problem of the South American region is the problem of wealth distribution. The economic figures are created without the consideration of the fact that these figures correspond to a small number of people or companies, the rest is poor and has not a lot of chances for social and personal economic development. Social orientation should be the next step for the whole region, this way the economy will become song as never before, because of the fact that more and more people will be interested in creating GDP through the increase in their personal wealth. (Keen, 1999)

References

1. Keen, B. (1999). “A History of Latin America”. Boston: Houghton Mifflin (6^th ed.)
2. De Soto, H. (2002). “The Other Path”. Basic Books Pub. (2002, 2^nd ed.)
3. De Soto, H. (2002). “The Mystery Of Capital”. Black Swan Pub. (2002).
4. Dominguez. (1994). “Economic Strategies and Policies Latin America (Essays on Mexico, Central and South America) Vol.1” New York: Garland Pub.
5. Bulmer-Thomas, V. (2003). The Economic History of Latin America since Independence. Cambridge, England: Cambridge University Press
6. Chasteen, J. C. (Ed.). (1993). The Contemporary History of Latin America. Durham, NC: Duke University Press