Earlier this month the World Bank held its annual meeting in Lima, Peru—the first time the Bank’s annual gathering has touched down in South America since 1967. Planned long in advance, the original idea had been to celebrate the region’s return to economic growth.
But now there is little to celebrate in the region, as Latin America’s China-led commodity boom has reached a limit and the region faces sliding growth and growing social and environmental conflict.
Riding the coattails of the China-led commodity boom, between 2003 and 2013 Latin American countries grew faster than any period since the relatively high growth of the 1960s and 1970s. As a result, during the boom many countries in the region were able to erase the increases in inequality from the low growth, crisis-ridden Washington Consensus period from the 1980s to 2002—a period associated with the unpopular World Bank and International Monetary Fund (IMF) programs.
At the same time China is experiencing a bumpy transition to a more consumption-led economy and is no longer driving a global commodity boom. The decline in China’s demand for commodities, in part, explains why Latin America is projected to grow at just 0.5 percent in 2015.
While Latin American leaders must be credited for using some of the proceeds to reduce poverty and inequality during the China boom, those same leaders invested little of the proceeds to diversify into services and manufacturing activities that could have picked up the slack now that commodity prices have plateaued and even begun to fall.