South America's Unrest - Delayed Response

The current unrest and political upheaval in Bolivia and other South American countries mark a breaking point: The political leaders are now confronted with the late consequences of the global financial crisis 2008. The continent still has not recovered from the decreasing demand of the USA, Europe and China

14.11.2019, Bolivien, La Paz: Die Haupteingänge zur Plaza Murillo sind gesperrt. Tankstellen haben keinen Treibstoff mehr, weil Anhänger des ehemaligen Präsidenten Morales die Hauptverkehrsstraße blockierten.
Civil war in Bolivia: Followers of former president Evo Morales have blocked a driveway to a gas station / picture alliance

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Allison Ferdika arbeitet als Analystin für die Denkfabrik Geopolitical Futures. Sie hat mehrere Jahre in Südamerika gelebt. 

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South America is convulsing. In less than two months, public unrest has led to the cancellation of economic reforms in Ecuador, first steps for constitutional revisions in Chile and a president’s resignation in Bolivia. Political battles have played out in Argentina in the election of a populist president, in Peru as an institutional crisis between the executive and legislative branches, and in Brazil with former President Luiz Inacio Lula da Silva’s recent release from jail and subsequent rallying of his base to confront the current administration. Geopolitics teaches us that a series of powerful events concentrated in one region and moment in time is rarely a coincidence. Such dramatic events are a product of underlying forces at play across the region.

South America occupies a peripheral position in the current global system; as such, it will experience global events differently than other parts of the world. While this may be stating the obvious, there is a difference between having an understated, indirect role in global affairs and being completely removed from or immune to them. In practice, this often means that while a region may not be directly shaping world events, it acutely feels the secondary effects of external events without having much power to shape the outcome. Indeed, one of the core drivers behind South America’s current unrest is the region’s unique experience of the 2008 global financial crisis.

The Remnants of 2008

The peak of the 2008 crisis dramatically and directly impacted the world’s largest economies – the United States, Europe and China. Washington implemented a massive bailout program to keep the economy afloat; the eurozone had to deal with a banking crisis; and China was hit with a jarring drop in growth because of decreased demand from the U.S. and Europe, prompting Beijing to unleash an unprecedented firehose of stimulus. These events set off secondary effects around the globe. Most notably, lower global demand, led by these three major markets, reduced trade flows and commodity prices around the world. It was primarily these secondary effects that hit South America.

Compared to the countries at the epicenter of the crisis, South America appeared to emerge in relatively good shape. With the notable exceptions of Argentina and Venezuela, South American economies’ gross domestic products performed better in 2009 than the global average, which contracted by 1.69 percent. Several South American countries – including Peru, Colombia and Ecuador – even maintained positive GDP growth in 2009, experiencing a reduction in growth rather than contraction. Every country in the region saw its economy bounce back in 2010. The region as a whole was bruised by the initial crisis but took no fatal blows. Its problems would not come to a head until about a decade later.

More a stress fracture than a trauma

The global recovery from the 2008 crisis has been slow and weak, and this lackluster recovery is what has proved more problematic for South America than the initial crisis. South America felt the crisis most acutely through commodity prices, which are closely linked to the weaker demand observed during the slow recovery.

Commodities play a significant role in economic activity and trade in the region, and though the commodities of importance may vary by country, natural resource and raw material production have figured prominently in South American economies since colonial times. After the 2008 crisis global demand fell, putting downward pressure on commodity prices. As low demand persisted, it suppressed prices, preventing a strong rebound and quick return to pre-crisis levels. While South American countries continued to export commodities, the volume of exports has only slightly grown in the past decade as global trade in general has struggled to fully recover.

For South American economies and governments, this translated into weaker revenue flows and economic activity. Though the levels may not have been dramatic enough to cause serious problems initially, the accumulated effects built up over time. Unlike major economies in the north, South America’s experience of the 2008 crisis more resembles a stress fracture than blunt force trauma. But keep adding pressure to a stress fracture and eventually the bone will crack.

A Breaking Point

After years of slowly accumulated economic and social pressure on the region, the current unrest and political upheaval mark a breaking point. Moreover, the geopolitical forces at work here go beyond ideology. Initially, the unrest and political infighting targeted open-market, fiscally responsible policies, in places like Ecuador and Argentina. However, the resignation of populist Bolivian President Evo Morales shows that the pressures on the region supersede political ideology. Though countries in the region tend to oscillate between left-wing and right-wing politics, such cycles are normal in most countries. But they are symptoms of events rather than the driving forces.

Over time, the gradually increasing strain these countries experienced in the wake of the financial crisis made it increasingly difficult for their governments to keep the population content enough to avoid mass mobilization. This did not happen overnight. Nascent signs of stress on the system, such as increased frequency of anti-corruption investigations throughout the region, were subtly emerging prior to 2019. In times of prosperity, it is easy to use money to reduce or mask these issues. But as resources to deal with underlying socio-economic and political issues diminish, how governments use public funds becomes more heavily scrutinized.

Hero in a jail cell 

Ultimately, the prolonged strain on the region’s economic, political and social systems brought to the fore fundamental issues unique to each country. In Argentina, for example, the presidential election revolved around the country’s economic malaise and how it should address its debt and relationship with the International Monetary Fund. For Ecuador, the revival of the Confederation of Indigenous Nationalities of Ecuador’s participation in domestic politics highlights the question of natural resource extraction and indigenous rights. Da Silva can emerge as a hero from his jail cell because Brazil has yet to reconcile its wealth and development disparities, which are driven by the economic imbalance between north and south. These issues all go beyond party lines and strike deep at the heart of long-standing challenges faced by each country. They existed in the years preceding and following the 2008 financial crisis, but it took the delayed, gradual impact of that crisis to bring them to a head.

The timing of these protests will only put further pressure on these countries; to quell the unrest, they’ll need to be rather self-reliant. The weak expansionary period that followed the 2008 crisis appears to have peaked; a global economic slowdown is widely expected, and ongoing fallout from trade wars continues as trade discrepancies remain unresolved and uncertainty abounds. Concerns over global demand once again bring trade and commodity prices into question. South American countries now face deep socio-political crises with the next global downturn just around the corner, and the region’s experience will be markedly different this time around.

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