Latin America's Great Economic Divide

There’s a rift in Latin America that is neatly defined by two oceans. According to the International Monetary Fund’s latest economic forecasts, the Atlantic-facing countries of Venezuela, Brazil, and Argentina, the largest members of the Mercosur customs union, will grow at an average rate of 0.6 percent this year; while Chile, Peru, Colombia, and Mexico—which make up the Pacific Alliance—will expand by 4.2 percent.

The divide has little to do with western Latin America’s orientation toward a dynamic Asia or the eastern countries’ exposure to a stagnant Europe. Blessed with abundant natural resources and an almost 200-million-strong consumer market, Brazil remains the regional economic giant. And Venezuela commands some of the largest petroleum reserves in the world. Yet at the end of a decade-long boom driven by cheap money and strong commodity prices, growth in both countries is lagging behind that of many of their neighbors. The standouts are those that, despite a more challenging global environment, have not reverted to the age-old “isms” (think statism and protectionism). “Some countries partied and splurged during the boom years; others did their homework,” says Ramón Aracena, chief Latin America economist at the Washington-based Institute of International Finance. “Latin America is no longer a unified bloc with a synchronized business cycle.”