Economic growth and public attitudes in Latin America

SUBJECT: Economic growth and public attitudes in Latin America.

SIGNIFICANCE: Latin America's strong economic growth in recent years appears to have bred frustration, rather than satisfaction, as expectations have run ahead of the perceived benefits of growth.

According to a recent survey, Latin Americans are becoming more sceptical about the virtues of a market economy.

ANALYSIS: Between 2003 and 2006, GDP growth in Latin America averaged 4.5% -- the highest rate for a four-year period in the past 25 years -- and, according to the UN Economic Commission for Latin America and the Caribbean (ECLAC), will reach 5.0% this year and 4.5% in 2008. At the same time, the regional poverty rate dropped to 39.8% in 2005, down from 44.0% in 2002, while extreme poverty fell from 19.4% to 15.4%.

The positive impact of economic growth on the daily lives of the region's inhabitants is evident in the results of the latest survey carried out in 18 countries by Latinobarometro, a Santiago-based research organisation, which has surveyed public attitudes in Latin America annually since 1995 ( see LATIN AMERICA: Rising expectations challenge democracy - January 9, 2007):

* According to the survey, 21% consider the economic situation of their country to be good or very good, up from a low of 7% in 2003. More significantly, only 28%, down from 59% in 2003, consider it bad or very bad.
* Fear of job loss has also dropped sharply and, although unemployment is still identified as the region's most important problem, it is now only just ahead of fear of crime, which has been increasing steadily.
* The survey found that 89% of Latin Americans have at least one hot meal a day, 90% have a colour television, 77% have a refrigerator and 71% live in a house or flat in which parents have a separate bedroom from their children.

Expectations. However, the benefits of economic growth, driven mainly by record prices for commodity exports, have not measured up to expectations and, moreover, Latin Americans are dubious as to whether they will do so in the future. On average, they give their current living standards a mark of 5.5 on a scale of 1.0-10.0 but say they feel entitled to a level of 7.1. In a clear sign of the pressure on governments to deliver, they indicate that they expect to reach a level of 6.9 in five years' time. However, only 46% anticipate that their personal economic situation will improve in the next twelve months, a figure that dropped this year for the first time since 2003.

In some cases, the expectations of Latin Americans are unrealistic. On average, they consider that men should be able to retire at the age of 57 (as compared to an average life expectancy of 70) and women at 52 (life expectancy of 76). These are clearly lower ages than Latin America's economies can afford and are doubly unrealistic in a region where a significant part of the population still lacks social security coverage.

Income distribution. However, dissatisfaction with the benefits of growth reflects the very real problem of extremely unequal income distribution ( see LATIN AMERICA: Poverty, inequality challenges remain - July 30, 2007):

* The recent survey found that 75% of the region's inhabitants consider the distribution of wealth to be unfair or very unfair, a figure that has shown little change since the mid-1990s. Only in Venezuela do more than 50% of the population consider it fair or very fair, while this figure drops to 8% in Peru and 6% in Paraguay and even in Chile -- which has achieved exceptional progress in reducing poverty -- reaches only 10%.
* Asked about the degree of conflict between different social groups, 75% indicated that there is an important degree of conflict between rich and poor, while 72% considered this to be the case between employers and workers.

Impact on economic attitudes. Latinobarometro found evidence that impatience for a greater share of the benefits of growth is also producing impatience with prevailing economic policies (see LATIN AMERICA: Inequality undermines social cohesion - February 27, 2007):

1.Support for free-market policies. Only 52% of the region's inhabitants now believe that a market economy is best for their country, down from 59% in 2006 and 66% in 1998, with figures ranging from 74% in Colombia to 34% in Guatemala. This drop is attributed partly to Venezuela's President Hugo Chavez and his criticism of the market model (although 49% of Venezuelans consider it to be the best system).

The change is even more marked in the case of those who consider a market economy to be the only system through which a country can attain development. This dropped to 47%, down from 63% in 2005, and, in Guatemala, Panama and Venezuela, the drop since 2005 reached 25 percentage points (in the case of Venezuela from 66% to 41%), while in Chile -- widely regarded as one of the region's models of free-market policies -- there was a 21-point drop to 41%. In addition, only 50% of those surveyed considered it fair for a person who is more efficient and reliable to earn more than another person doing the same job less efficiently and reliably. This figure, at 38%, was lowest in Venezuela.

2. Private enterprise. Although 56% consider that private enterprise is essential for a country's development (down from 64% in 2004), an increasing number of Latin Americans think that basic services, such as electricity, telephones and fuel distribution, should be managed by the state. However, contradictorily, the percentage that considers privatisations to have been beneficial increased slightly (although remaining well below its level in the late 1990s).

Political attitudes. The results of the 2007 Latinobarometro survey challenge the widespread assumption that sustained economic growth increases confidence in democracy. Support for democracy reached its lowest point of 48% in 2001, when Latin America was suffering the impact of the Asian financial crisis, and had recovered to 58% by last year, but this year dropped to 54%. Similarly, satisfaction with democracy reached 38% last year, up from 25% in 2001 but has since dropped back to 37%.

Apart from El Salvador and Honduras, the largest drops in support for democracy were seen in Argentina and Chile (now 63% and 46%, respectively) despite the strong economic growth of these two countries:

* In Chile, this has been attributed partly to the failure of President Michelle Bachelet to deliver on expectations of social change and to the obvious tiredness of the centre-left coalition that has held office since the restoration of democracy in 1990.
* In Argentina, where presidential elections were held on October 28 -- which typically means at least a temporary boost in support for democracy -- it may reflect a perception of lack of change because President Nestor Kirchner will be succeeded by his wife, Cristina Fernandez