Mauricio Cardenas Discusses the Polycrisis Facing Latin America
On November 7, the Georgetown Americas Institute welcomed Mauricio Cardenas, professor of professional practice in global leadership at Columbia University, and former Colombian minister of finance, for a conversation with Alejandro Werner, founding director of the Georgetown Americas Institute, on the future of LAC countries facing a multiple concurrent challenges across the economic, political, and social sphere.
The Current Crises
Cardenas framed the conversation by outlining overlapping global issues that could unlock important opportunities for Latin America and the Caribbean (LAC). The region has the resources to be a key player in solutions to global issues. For example, while the world faces a food and energy crisis due to the Russian invasion of Ukraine, the oil supply in Guyana and Brazil and the growing potential of other resources in various Latin American regions could provide useful solutions.
The world also faces multiple conflicts, wars, and rising geopolitical tensions. Cardenas mentioned that Latin America has the advantage of not being a source of serious conflicts, although the region does face security and safety issues due to high crime rates. On the topic of geopolitics, the region benefits from being friendly to various global powers, including China, Europe, and the United States. Many of these powers are encouraged to do business in LAC because the region is seen as a reliable and predictable partner with key strategic assets.
“These opportunities are not happening in a vacuum. They’re happening in a context of really challenging situations.” –Mauricio Cardenas
Within LAC, Cardenas described that there are three main challenges that would prevent the region from being able to fully take advantage of these opportunities. First, rising social tensions due to the post-pandemic increase of poverty. Second, LAC faces low economic growth and underperforms in comparison to other regions around the world. Lastly, the region faces a financial scenario marked by high debt and low fiscal space.
Latin America’s Climate Crisis
One issue that Cardenas found particularly relevant for both LAC and the world is the climate crisis. The region has important assets to help combat climate change, including biodiversity, critical minerals, and low-carbon emissions. LAC countries are ambitious in regard to climate action, but will face significant costs in the energy transition. Climate-vulnerable countries also have no fiscal space to borrow more funds to address emerging environmental challenges.
However, the energy transition risks could be much higher than the cost of adaptation, and transition risks are specific to each country. For example, for fossil fuel producing countries, like Mexico or Venezuela, there will be a reduction in global demand and production of oil and loss in government and external revenues. Other countries that are agriculture-based, like Uruguay or Argentina, could face a change in consumer preferences, for example not consuming beef because of its carbon footprint. The last risk Cardenas mentioned was the need to address illegal deforestation by spending money on communities to encourage other business practices.
A New Paradigm in Latin America
While many experts have been worried about a rise in populism, Cardenas explained that the current political scenario is not conducive to a return to the old-style populism of the second half the twentieth century. The emerging new style of populism has not led to fiscal deficits funded through monetary expansion or to overreach by executive leadership, with the exception of Venezuela and El Salvador. Central banks are also becoming more independent, according to IMF data.
This new populism in Latin America is very similar to European or U.S. populism, which has nothing to do with fiscal management. This brand of populism is marked by intense social divisions, as leaders attempt to divide society into categories of good and bad, the poor and the elites. These divisions create social tensions, generating the political conditions for populist leaders to blame and break away from technocrats and the political establishment. This represents a hybrid, according to Cardenas. While many LAC populists use rhetoric to position themselves against the Washington Consensus, they still preserve many elements of its macroeconomic policy framework. From the old paradigm, they maintain independent monetary policy, fiscal discipline, trade liberalization, and openness to foreign direct investment.
What’s Next?
Cardenas worried about tube macroeconomic stability of the emergent political paradigm. The state is not engaging society through typical means like government spending, instead it is taking control in key sectors and markets. State-owned enterprises are taking over and pushing private companies aside, and social policies are being pursued with the political intent to favor certain electoral demographics. Societal division is being used as a tool of governance. Cardenas concluded that states are being given new roles that they are not prepared for, opening the door for corruption. He predicted that in this emerging environment, populists will eventually revert to old-style populism, with all of its associated negative consequences.