Realtors in the US South repeat this prayer on daily basis while asking the universe to preserve the leaders of Argentina, Brazil, Mexico and Peru in good health. Indeed, they have survived the 2008 financial meltdown, Covid19 and other tragedies by means of being on the receiving end of enhanced capital flight from those countries. Frightened middle class families are placing their savings in the US where they know they will not be hit by devaluation; abusive taxation or foreign exchange stopgaps.
Capital flight from emerging markets has reached one trillion US dollars. Latin America’s contribution is a little bit over half that figure. This allows us to better understand the relative stagnation of Latin America . It is experiencing a continuing financial hemorrhage that impairs the economy to function. That half a trillion that flows to the US and to a lesser extent to Europe is the lifeblood that the economic system needs to grow ; create employment and build up a healthy middle class that through aggregate demand promotes innovation and more growth.
But for this capital to stay home the first requirement is political stability in terms of public policies that are focused on creating wealth. Such policies have three ingredients. First they are upheld for several decades. Second, they promote supply growth; third they strengthen respect of private property; intellectual property rights and contracts. A cursory search to determine the existence of such policies in the region reveals a significant absence except for Barbados; Chile; Costa Rica and Uruguay. These precisely are the countries that are more developed and where capital flight is the least, as it mostly is tied to trade mis invoicing ( underreporting value of exports from emerging markets). This countries thus seem to be destined to become development hubs in the region. This countries indeed not only are strengthened by the infusion of their citizens savings into economic activity but also are magnets for foreign direct investment. They thus might become the Latin American Tigers .
Meanwhile those whose heads of state are blessed by the US Association of Southern Realtors have bleed not only their own savings but failed to attract foreign savings as foreign direct investment has dropped from $260 billion in 2012 to an estimated $ 130 billion this year. Given hat infrastructure refurnishing needs in the mayor economies of Latin America amount to $ 90 billion this scant inflow of foreign direct investment will have little impact upon todays’ growth constraints. Worse, it will not go to infrastructure, as investments in this space demand long term public policy stability And this situation will worsen with time as lack of proper infrastructure further increases economic paralysis because its enhances the cost of doing business in these economies outpricing their products in the international market where they need to be as efficient as the Asians and even Africans. In short it seems as the southern realtors of the US will continue to enjoy for many years the Latin bonus.
Capital flight from emerging markets has reached one trillion US dollars. Latin America’s contribution is a little bit over half that figure. This allows us to better understand the relative stagnation of Latin America . It is experiencing a continuing financial hemorrhage that impairs the economy to function. That half a trillion that flows to the US and to a lesser extent to Europe is the lifeblood that the economic system needs to grow ; create employment and build up a healthy middle class that through aggregate demand promotes innovation and more growth.
But for this capital to stay home the first requirement is political stability in terms of public policies that are focused on creating wealth. Such policies have three ingredients. First they are upheld for several decades. Second, they promote supply growth; third they strengthen respect of private property; intellectual property rights and contracts. A cursory search to determine the existence of such policies in the region reveals a significant absence except for Barbados; Chile; Costa Rica and Uruguay. These precisely are the countries that are more developed and where capital flight is the least, as it mostly is tied to trade mis invoicing ( underreporting value of exports from emerging markets). This countries thus seem to be destined to become development hubs in the region. This countries indeed not only are strengthened by the infusion of their citizens savings into economic activity but also are magnets for foreign direct investment. They thus might become the Latin American Tigers .
Meanwhile those whose heads of state are blessed by the US Association of Southern Realtors have bleed not only their own savings but failed to attract foreign savings as foreign direct investment has dropped from $260 billion in 2012 to an estimated $ 130 billion this year. Given hat infrastructure refurnishing needs in the mayor economies of Latin America amount to $ 90 billion this scant inflow of foreign direct investment will have little impact upon todays’ growth constraints. Worse, it will not go to infrastructure, as investments in this space demand long term public policy stability And this situation will worsen with time as lack of proper infrastructure further increases economic paralysis because its enhances the cost of doing business in these economies outpricing their products in the international market where they need to be as efficient as the Asians and even Africans. In short it seems as the southern realtors of the US will continue to enjoy for many years the Latin bonus.
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