By Jerry Haar and Krystal Rodriguez
The dictionary definition of crucible is “an extremely difficult experience or situation; a severe test or trial”. This is precisely where most of Latin America finds itself with its excessive dependence on commodities as the linchpin of its economy. In good times governments spend commodity windfalls on projects or programs to garner support for the political party in power. In bad times, politicians engage in handwringing and scapegoating, and the governing party borrows excessively to make up the shortfall in revenue from commodity sales.
As the title of a recent article in the online publication Knowledge@Wharton asks: “Can Latin America Free Itself from Dependence on Commodities?” The Bloomberg Commodity Index, which tracks prices of 22 raw materials, closed the third quarter this year with a sharp decline. Making matters worse, the International Monetary Fund has forecast that at the end of 2016, Latin America will remain in a recession for the second consecutive year, with GDP declining by 0.4 percent.
While it is not feasible for Latin America to free itself altogether from dependence on commodities, what the big regional emerging markets of Argentina, Brazil, Chile and Peru can do is to boost their knowledge-based industries and value-added services sectors. Argentina illustrates, in the first instance, how economic diversification can do precisely that while transforming the very commodities from which to lessen its …
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