Chilean Macroeconomic and Financial Outlook – LAC Development and the Bicentennial

In September Chile celebrated its 200th anniversary since independence, joining several other Latin American countries (LAC) that during this year are doing the same. Two centuries have elapsed since the LAC emancipated from Spain, a bit less in the case of Brazil’s emancipation from Portugal, and despite all the progress made, they are far from achieving the standard of living of their former European colonizers. Chile and other few LACs are getting closer and will likely attain a standard of living of a developed country during the next century. 

In the third century after independence Chile is well positioned to finally cross the development threshold reaching a per capita income (pc GDP) of 22,000 dollars at PPP, Portugal’s 2010 level.  Keeping the average real growth rate of pc GDP of the first decade of the XXI century (3.5%), Chile would reach the pc GDP level that today is commonly identified with the development threshold in the early 2020s. Moreover, further extrapolating pc GDP growth, Chile would attain the current pc GDP level of Spain (27,000) in the early 2030s.  However, Chile would not be alone in this achievement, despite that the current gaps in living standards with Portugal and Spain of the other LAC are in general wider, up to two times for the most backwards, and that their growth rates are somewhat lower; by the end of the XXI century, several other LAC would join Chile in reaching the current pc GDP of Portugal and of Spain. The group includes Argentina, Brazil, Colombia, Ecuador, Costa Rica, México, Peru and Uruguay, all of them would cross the current development threshold before the third centennial, to the extent that they are able to maintain the growth rates of pc GDP of the first decade of the XXI century. The only exception among the ten LA countries considered is Venezuela, basically because its pc GDP is stagnant as its slow economic growth is insufficient to compensate population growth, reflecting the dire results of years of dismal economic policies.

But the standard of living that we identify with development is an elusive target, and the pc GDP of Portugal in 2010 will surely seem insufficient for the aspirations of the people living in the second half of the XXI century. In that regard, a smaller group of LAC can aspire to attain convergence with Portugal and Spain, i.e. to achieve simultaneously the same pc GDP with their former colonizers. Again, if the LAC, Portugal and Spain were to maintain the same rate of pc GDP growth of the first decade throughout the XXI century, Chile would achieve convergence with Portugal in the 2030s and with Spain in 2040s. Peru would be the only other LAC that would achieve convergence before the third centennial with both Portugal, in the 2060s, and with Spain, in the 2080s. Other countries like Argentina, Costa Rica and Uruguay would achieve convergence with Portugal only in the 2080s. The rates of growth of Brazil, Colombia and Ecuador are not sufficiently higher than those of Spain and Portugal to be able to close the gap in standards of living during the next century. To prove us wrong they would need to accelerate their rate of economic growth well above their averages of the first decade of this century; difficult but not impossible.

Of course the growth exercise presented in this note is for reference only: growth rates are not predetermined and may change in the future reflecting the policies of the different countries; those that are able to maintain macroeconomic and financial stability while stimulating innovation, competition, savings, entrepreneurship, productivity and the accumulation of human capital, will be able to sustain a faster growth rate. The results of this exercise indicate that the current lineup show different degrees of advancement in the career for development, and that the events of the first decade are favoring several LAC, particularly those of the Pacific Rim (Chile and Peru), above their former European colonizers. In historical prospective this result is a radical innovation, after the first centennial only the LAC from the Atlantic were expected to cross the development threshold. Hopefully, Chile and Peru will be able to project into the future their policies and achievements of recent years; and on the basis of rapid and sustained economic growth give to their people a standard of living similar to that of southern European countries. Doing so may not solve all of their problems, but will surely help to provide their peoples with many more opportunities for happiness and success than their ancestors had during the first two centuries of independent life.