Assuming that the pace of GDP growth declines to 3.5%, the size of the Latin American aggregate economy will be $8.9 trillion by 2030. At the same time, U.S. GDP growth will remain anaemic, given its need to digest the enormous debt overhang that was accumulated during the past decade. Therefore, the U.S. GDP growth rate will probably average between 1.5% and 2%, meaning that the aggregate Latin American economy will be about half the size of the U.S. in less than 20 years. Currently, it is only a third. Of course, these assumptions are on the pessimistic side for Latin America and on the optimistic side for the U.S. Given the recent warnings issued by S&P, the dynamics for the U.S. economy could be much worse. An ugly budget row could lead to further depreciation of the dollar, which would further depress the relative size of the U.S. economy. At the same time, population growth in Latin America is on the decline. Less than a decade ago, the region had a population growth of 2%. However, the improved prosperity reduced the population growth rate to 1.09%. This suggests that Latin America’s per capita income should reach $14,000 by 2030—almost 50% more than current levels. The change in economic conditions will create regional and political opportunities and challenges.
Two centuries ago, as Simon Bolivar led his army of rag-tag soldiers against a half-hearted attempt by the Spanish crown to retake its colonies, a handful of Latin American leaders knew that the region had an opportunity to emerge as a global power if it pooled its resources into a single nation. However, the majority of the provincial leaders were more interested in dividing the colonial spoils among themselves, thus opting for a grouping of nations that was loosely based on the Spanish viceroyalties. The U.S. and Great Britain quickly realized the threat posed by a united Latin America. Therefore, both countries provided arms and troops to foster the creation of several regional governments. For the next two centuries, the array of Latin American nations was relatively stable, with the societies happily focused on dividing the treasure trove of natural resources that laid at its disposal. However, the onset of globalization is now creating the realization for Latin American leaders that their size and scale has left them at a major disadvantage. This is something that Europe realized decades ago, and which led to the formation of the European Union, and it is a movement that is now taking hold in Latin America.
This is not to bolster Hugo Chavez’s Bolivarian concepts or “revolutionary” antics. However, it is evident in the cross-border investments that are proliferating across Latin America. Mexican telecommunication companies, Chilean retailers, Brazilian beef producers are venturing across their borders to create the size needed to compete in the international arena. Once the companies reach a certain scale, they can then venture further afield—with acquisitions in North America and Europe. This is only the first step in a process of regional integration. Latin American leaders will quickly realize that small investments in infrastructure will facilitate cross border trade and communication. The interesting thing is that regional integration will happen much faster than anyone ever imagined. Although there are stark differences between Latin American capitals, the social variances disappear quickly in rural areas. Latin American borders are porous, allowing for the free flow of goods and cultures. The population of the altiplano do not see themselves as Bolivians, Peruvians, Chileans or Argentines, they are a homogenous people. The same goes for the regions of Cuyo, Patagonia, the Amazons, the Andes and Guajira. In contrast to Europe, where borders were delineated along cultural and ethnic differences, Latin America’s borders were arbitrarily defined along geographical boundaries. This created fluid borders that will be easy to open. The integration of Latin America will introduce a new level of complexity on the international stage, as its pooled resources compete against North America, Europe and Asia. Failure to do so will leave Latin America weak and fragmented. This is something that most Latin American leaders realize; as they see foreign behemoths make powerful incursions into their economies. If done properly, Latin America could become a major player on the global stage, with the financial, political and natural resources to become one of the most prosperous regions of the planet. All it needs is a little bit of vision and the willingness to break out of its shell.