There is a rising star in Latin America. And it is not the a member of the BRICs, but Mexico.
Mexico has received consisten attention regarding its security challenges, but things have started to change over the past few months. In August, Nomura published a report that forecast Mexico would become Latin America’s number-one economy by 2022, stating that “the recent relative outperformance of the Mexican economy to Brazil could prove to be long lasting."
That’s a controversial argument when considering Brazil’s explosive growth during the past years. While its recent economic performance has been weak, this does not imply that South America’s giant will not be able to recover. Or does it?
Brazil’s rapid economic growth was not only due to a favorable macroeconomic outlook and the timely implementation of much-needed reforms, but also, and more importantly, to China’s insatiable appetite for natural resources. The Chinese government has been progressively increasing its presence in foreign markets to guarantee a steady supply of resources, especially energy. This is critical for the Chinese Communist Party, as its legitimacy rests on providing good economic prospects to its population.
Economists, social scientists and policy makers highlight the rapid expansion of the middle class in Latin America, but Jamele Rigolini, a senior economist at the World Bank, emphasizes that this growth is not exclusive to the region. In an article published today in Americas Quarterly’s Fall 2012 issue on the middle class, Rigolini writes, “while the industrialized world was facing a challenging decade, many emerging economies surfed past the global turbulences and continued to grow, lifting people out of poverty and feeding the ranks of their middle classes.”
According to Rigolini, the BRIC countries—Brazil, Russia, India, and China—are all experiencing varying degrees of growth in their middle class, with growth in some regions more substantial than in others. When 50 million individuals joined Latin America’s middle class in the past decade, about 20 million of them were Brazilian. The middle class now comprises about 50 percent of the country’s population, making Brazil an increasingly middle-class society.
Russia and China’s middle classes have also grown remarkably, with the middle class more than doubling in Russia to comprise over half the population, and increasing from 10 million to 83 million individuals in China over 10 years—an eightfold increase. China’s middle class is expected to expand to 1 billion individuals by 2030, making up a predicted 72 percent of the country’s projected future population.
According to a November 9 World Bank report, the size of Latin America’s middle class has grown to equal the number of Latin Americans living in moderate poverty for the first time ever.
Nonetheless, inequality and poverty in the BRIC countries remains a formidable problem. China’s new middle class currently represents only 10 percent of its population. Meanwhile, in India, the 9 million people classified as middle class in 2010 still represent less than 1 percent of that country’s citizens. And Latin America continues to be classified as one of the most unequal regions in the world, with almost two-thirds of the population yet to reach middle-class status in some countries.
“Everything else being equal, when the proportion of the middle class in a society increases, social policy on health and education becomes more active and the quality of governance regarding democratic participation and official corruption improves,” Rigolini says. “Whether the change brought by the middle classes is always good for the poor remains, however, an open question.”
Speaking in Santiago, Chile, in March of last year, President Obama called Latin America “a region on the move,” one that is “more important to the prosperity and security of the United States than ever before.”
Somebody forgot to tell the Washington brain trust.
The Center for a New American Security, a respected national security think tank a half-mile from the White House, recently released a new series of policy recommendations for the next presidential administration. The 70-page “grand strategy” report only contained a short paragraph on Brazil and made only one passing reference to Latin America.
Yes, we get it. The relative calm south of the United States seems to pale in comparison to other developments in the world: China on a seemingly inevitable path to becoming a global economic powerhouse, the potential of political change in the Middle East, the feared dismemberment of the eurozone, and rogue states like Iran and North Korea flaunting international norms and regional stability.
But the need to shore up our allies and recognize legitimate threats south of the Rio Grande goes to the heart of the U.S.’ changing role in the world and its strategic interests within it.
Here are three reasons why the U.S. must include Latin America in its strategic calculations:
Brazilian Finance Minister Guido Mantega said yesterday that the BRICS (Brazil, Russia, India, China, South Africa) bloc of advanced emerging economies should rally behind a single candidate for the presidency of the World Bank. Though an American has filled the role since the organization’s founding in 1946, developing nations—spearheaded by the BRICS group—seek to break to mold with whoever is nominated to succeed current president Robert Zoellick.
Mantega met United States nominee and global health expert Jim Yong Kim Thursday morning, but maintained that Brazil had not yet made a decision of who to endorse. “By late next week, Brazil should have a position on the matter, and I will talk with the other BRICS,” Mantega said.
Apart from Kim, the other front-runners include Nigerian Finance Minister Ngozi Okonjo-Iweala—who has received the support of many developing nations and South Africa—and former Colombian Finance Minister José Antonio Ocampo.
With this and similar proclamations on behalf of other BRICS nations, Brazil sees the nomination as an opportunity tip the balance of power, long held by the U.S., in favor of the emerging markets. The World Bank plans to make a decision before its spring meetings held jointly with the IMF, beginning on April 20.
The news that Brazil has overtaken Britain to become the world's sixth largest economic power is being touted as a sign that that the longtime "country of the future" has finally arrived. While the celebrations have been somewhat muted by concerns over slowing GDP growth and the country's still-heavy dependence on high energy and food prices, Brazil is heading into the coming global showcases of both the 2014 World Cup and the 2016 Summer Olympics with more than its usual swagger.
But this emerging economic prominence is raising the question of just what kind of actor Brazil will be on the world stage. In the past 20 years, Brazil has become well known for turning crisis situations into geopolitical opportunities, becoming a leading voice in international forums devoted to AIDS, poverty, and even the environment. And now, it is doing it again with a challenge that Brazilians understand all too well: a debt crisis.
Only this time, it's Europe in need of a helping hand, not the former Portuguese colony in Latin America. At an EU-Brazil summit held in Brussels last October, President Dilma Rousseff told European leaders, who had asked for assistance: "You can rely and count on us." As an initial strategy, Rousseff and her finance minister, Guido Mantega, considered using their foreign exchange reserves—estimated at $352 billion—to purchase debt through treasury bonds. However, after consulting with her BRIC colleagues at a meeting in Washington last November, Brazil decided that buying EU bonds would be too financially risky, and proposed instead to indirectly assist Europe by donating an estimated $10 billion to the International Monetary Fund.
June 1: This AQ-Efecto Naím segment looks at sustainable cities in the hemisphere.