Latin America unrest represents opportunity for change, says BBVA

Spanish banking giant BBVA said unrest in Latin America presents an opportunity to strengthen the social, political and economic fabric of the region.

Chile, Colombia, Ecuador, Peru and Bolivia have been shaken by demonstrations and outbreaks of violence this year.

While the exact combination of reasons for the unrest varies from country to country, inequality, subsidies, voter disaffection, corruption, crime rates, environmental issues and quality of public services are among the underlying factors.

“Protests increase uncertainty over the future of Latin America,” said BBVA principal economist for Latin America and Brazil, Enestor Dos Santos, in a report. “On the one hand, there is the risk they cause political and economic disruption. On the other, they represent an opportunity to adopt measures that improve democratic institutions, reduce economic and social disparities and promote economic dynamism.”

ALSO READ: Chile's negative growth could ease in November

A major challenge is implementing changes against a backdrop of sluggish growth. Latin American GDP has grown at an average annual rate of less than 1% since 2014, compared to the 4% annual growth recorded between 2004 and 2013.

The UN’s Eclac unit expects the region to expand 1.4% next year.

Despite the challenges, implementing change is “vital for the region to reach the exit from the maze it has found itself in,” Dos Santos said.

BBVA’s comments echo those of Chilean economist and academic Francisco Castañeda who, shortly after the start of the protests in Chile in October, highlighted the opportunity it presented for President Sebastián Piñera.

“President Piñera has a historic opportunity in the worst crisis in 40 years of Chilean society, this being the turning point to inject the market with a stronger social component,” Castañeda said at the time. “Countries that have made sustainable progress have adopted social pacts, with measurable goals, fiscal responsibility and a clear understanding of the problems of their population.”  

CHILE

The government is working on short-term and structural changes as part of efforts to address the grievances voiced during the protests, largely linked to inequality and living costs.

Maintaining or expanding rates of growth would be needed to help fund, in a sustainable manner, increased social spending, necessary to reduce inequality and improve public services.

Rodrigo Benítez, tax and legal lead partner at professional services firm BDO’s Chilean office, said recently that, against the backdrop of tax and constitution reform talks, the bottom line is that taxation should not hamper economic activity as that would weaken the tax haul – needed to finance higher social outlay. 

Last year the OECD urged Chile to implement policies to address low productivity levels and take steps to improve access to quality jobs and reduce high levels of inequality.

OECD secretary general Angel Gurría said at the time: "We now know that focusing just on growth doesn't work, and we now know that simply sharing out the pie doesn't work." 

Pictured: Colombian indigenous people and students protest on the eighth consecutive day against the government of President Iván Duque in Bogotá  on November 29, 2019.