Economics of Latin America
*The two wealthiest nations in Latin America are Brazil (#9 worldwide)
and Mexico (#13 worldwide), both of which had GDPs (adjusted for
purchasing power) of over $1 trillion a year. Argentina is third
(#22), and, for all its faults, Columbia is fourth (#28). Next
are Chile (#44), Peru (#47), and Venezuela (#52).
*Little St. Kitts and Nevis have the smallest GDP ($596 million, #183
out of 193 in the world), and most of the other Caribbean island
nations have similarly small GDPs. Belize has the smallest GDP of
any mainland country ($1.9 billion, #166 worldwide).
*In terms of GDP per capita, the Bahamas are wealthiest, with a GDP per
capita of $18,288 (#40 worldwide), and Barbados, with $16,483 is next
(#41 worldwide). Next are St. Kitts and Nevis (#48), Trinidad and
Tobago (#50), and Argentina with $12,468 per person (#52). Next
are Chile (#59: $10,869 per person), Costa Rica, Mexico, Uruguay,
and Brazil (#70: $8,328 per person).
*Haiti has the lowest GDP per capita in Latin America ($1,556 per
person (159)), but it is still wealthier than many African
nations. Honduras ($2,682 per person (#129)) and Bolivia ($2,902
per person (#127). Cuba is thought to have about $3,000 per
person (#126) but it’s hard to tell, as it does not release as many
official figures as some other nations.
*Historically, Latin America was a colonial region, with colonial
economies: they produced raw materials for export, and imported
finished goods from their mother countries. Even when they ceased
to be colonies outright, they retained colonial economies in many ways,
which made it hard for them to attain real wealth.
*In fact, wealth was even harder to promote because some places were
barely even colonial in the economies—the haciendas were largely
self-sufficient farms and ranches that did not even attempt to export
much; they just grew enough to support themselves and buy a few
*Land reform has been an attempt to change the problem of hacienda
economies, and it has created more consumers and let more people become
independent economic agents. So has the rise of industrialisation.
*Historically, South America exported metals (and some rare woods and
wood products, such as rubber, and bird droppings from the Atacama
Desert), while the Caribbean exported sugar. Once it became
possible to refrigerate it for long distances, food also became
increasingly important as a source for exports. Beef, citrus
fruits, bananas, coffee, chocolate, and cocaine are all important Latin
American exports today.
*In some cases, the export of one particular crop became some
countries’ entire reason for existing. These were known as banana
republics. In many cases, they were dominated economically and
politically by one or another foreign company with extensive economic
*The original banana republic was Honduras. In 1910, the United
Fruit Company (now Chiquita Banana) complained that its taxes were too
high. When the president of Honduras refused to give the company
tax breaks, United Fruit sent some thugs down to throw him out.
The next president gave United Fruit a 25-year waiver from paying any
*In 1954, the United Fruit Company got the CIA to go into Guatemala
when the president threatened to seize any unused land (including some
owned by United Fruit) to redistribute to the poor, particularly to
Indian peasants. United Fruit convinced the US government that
this was incipient communism, so the CIA helped local rebels overthrew
the Guatemalan government.
*In some cases, United Fruit was good for the countries it ran:
it built schools to educate potential workers, and railroads to
transport its products. On the other hand, it sometimes
discouraged the construction of roads, because these would cut into its
*Even today, Chiquita Banana and Dole Foods are very important in the
economies and politics of Central America.
*At the dawn of the 20th Century, a century after independence, most of
Latin America was still dependent on Europe and the USA for imports of
many manufactured goods. In the 1930s and 1940s, Latin America
tried to change this (partly in response to the Great Depression and
World War II, which badly disrupted the world economy without doing
much to directly affect Latin America physically). Thus, Latin
America turned to Import Substitution Industrialization.
*ISI is based on building the kinds of industries that produce the
things a country had previously had to import from outside. It
can be promoted through subsidies, through indirect government
interference or direct government control of industry, through high
tariffs on imports, or through several or all of these.
*It was most successful in countries that were already fairly large and
prosperous, and that had a lot of materials and workers to draw
from. Argentina, Brazil, Mexico, and to a lesser extent Chile and
Uruguay were fairly successful with this, while Ecuador, Honduras, the
Dominican Republic, and other (mostly smaller) countries were
not. It usually worked best in nations that were relatively
democratic and relatively free of corruption.
*In many cases, ISI did require (or at least result in) nationalisation
of various industries, often those owned by foreigners—so many US
companies, particularly oil companies in Mexico and Venezuela, lost
some of their assets.
*Eventually, however, ISI fell out of favour in much of Latin
America. For one thing, it was too much like the hacienda system
applied to the industrial world. For another, nationalizing the
industries made them, in many cases, inefficient. Governments
often mis-spent too much of the money they did make, or else just
skimmed it off for their personal bank accounts. A lack of
exports also made it hard for countries to gain money to import the
things they did want.
*In the 1980s and 1990s, much of Latin America began to move towards
Export-Oriented Industrialisation. Lowering tariffs, encouraging
foreign investment, reversing nationalisation, and simply having cheap
labour made it worthwhile for foreign companies to begin building
factories there again. In many cases, countries also devaluated
the local currency, making their exports more competitive.
*To encourage exports, many South American nations have entered into
free trade agreements.
*The Andean Community, founded in 1969, is a trade bloc comprising the
South American countries of Bolivia, Colombia, Ecuador, Peru and
Venezuela. Its member countries enjoy free trade or low tariffs
on many goods traded within the region.
*Mercosur (or Mercosul), the Southern Common Market, was founded in
1991 to permit free trade between Brazil, Argentina, Uruguay and
Paraguay. Bolivia, Chile, Colombia, Ecuador, Peru, and Venezuela
have associate member status.
*Mercosur and the Andean Community are in the process of uniting into
one free trade area, to be called the South American Community of
Nations. Full integration will hopefully be completed by 2007,
although some tariffs will remain in place until 2019. It would
create a common market for all of South America except the Guyanas.
*There is also a Central American Common Market between five nations of
Central America. It was established between the nations of Guatemala,
El Salvador, Honduras and Nicaragua in 1960. Costa Rica joined the CACM
in 1963. The CACM collapsed following the Football War of 1969,
but was re-instated in 1991. It has greatly lowered tariffs
between countries in the region.
*Mexico benefits from NAFTA, which went into effect in 1994. It
has let cheap Mexican labour work for American industries, particularly
in the maquiladora plants of the border town. These are factories
owned by Americans but worked by Mexicans, and all their products are
exported (usually sold in the United States). Many of these
assemble finished goods from parts made in the USA. This has
created boom towns opposite many major American border towns, but it
has also created opposition from those (in Mexico) who feel their
people are being exploited and from those (in the USA) who feel that
their jobs are going over the border.
*There has been significant discussion of creating a Free Trade Area of
the Americas to cover every state in North and South America except
Cuba. However, the 34 potential participating nations cannot
agree on exactly which tariffs to lower, and what industries will lose
subsidies, because American agriculture is heavily supported by the
government, while for Latin Americans, agricultural products remain
some of their most important exports, and they want to trade them
*Now that most Latin American countries no longer practise ISI, they
need and want foreign imports. Furthermore, they are increasingly
wealthy enough to afford modern conveniences and luxury goods—they are
developing a real middle class (even if it’s still smaller and poorer
than that of the USA or much of Europe).
*Nations like this are described as emerging markets, and are
particularly important because of the opportunities they afford foreign
companies and investors. This is particularly true because they
do not yet suffer from market saturation—most people who want a car,
TV, refrigerator, or other manufactured product may still need to buy
their first one; foreign companies do not have to compete with existing
product lines or wait for existing products to wear out.