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Five years ago spirits were soaring across Latin America. The region’s economies were bouncing back with startling speed from the global financial crisis to post their strongest growth rates in more than a decade. Robust Chinese demand for copper, iron ore, oil, soybeans and other commodities was filling government and private sector coffers and lifting millions of people into the ranks of the middle class. Companies like Brazilian aircraft maker Embraer, Chilean fashion retailer Falabella and Mexican bakery goods manufacturer Grupo Bimbo were extending their reach across the region and around the world. The Economist boldly proclaimed the region to be on the verge of a Latin American decade.

Today many Latin Americans are wondering if the region is going back to the bad old days of sluggish growth and dashed aspirations. A slowing global economy, especially the cooling in China, has sent commodities prices tumbling and exposed the failure of most Latin economies to diversify during the boom years. Raw materials account for more than half of the region’s exports, a proportion that has changed little since the 1990s. In January the International Monetary Fund cut its forecast for regional growth this year by 0.9 percentage point, to just 1.3 percent, virtually unchanged from last year’s 1.2 percent pace. It was the sharpest downgrade of any region except Russia and the Commonwealth of Independent States.

This colder economic climate has sent shivers throughout the region. Considered an elite emerging market a few years ago, Brazil is now a falling BRIC, struggling to escape from recession and maintain its investment-grade rating. In Colombia, where reduced political and drug-related violence fostered an economic flowering based on oil, agriculture and manufacturing, the currency has lost a quarter of its value since September and the current-account deficit is widening. Even Chile, the Latin American nation closest to developed-country status, has seen its economy sputter as prices for copper, its most important export, have tumbled. Pressure is even greater in the region’s basket cases. Argentina’s hopes of staving off economic collapse rest largely on increasing its soybean exports even as prices continue to shrink. And Venezuela, which gets 95 percent of its export revenue from oil, finds itself on the verge of default; its people struggle to buy food and basic consumer goods like toothpaste and toilet paper.

The end of the commodities supercycle has exposed other weaknesses, of poor governance, mismanagement and corruption. In Brazil, President Dilma Rousseff faces a mounting storm over the embezzlement of billions of dollars at state-owned petroleum company Petróleo Brasileiro (Petrobras). In Mexico, President Enrique Peña Nieto’s landmark economic reforms have been overshadowed by horrific episodes of drug violence and evidence that government officials, including the president, personally benefited from close ties to a major construction company. And in Argentina a politically weakened President Cristina Fernández de Kirchner will serve out her term this year under suspicion that her government was involved in the death of a star prosecutor.

The unprecedented revenues from oil, minerals and agricultural products over the past decade strengthened politicians across the region, but as the money has dried up they have become much more vulnerable to scandal. “We are seeing the end of a supercycle in politics as well as for commodities,” says Christopher Garman, a Washington-­based analyst for Eurasia Group, a risk consulting firm.

As if these problems weren’t enough, Latin countries face a potential tightening of global liquidity as markets brace for the first rate hike by the U.S. Federal Reserve and the dollar rises against regional currencies. Banco Central do Brasil has raised its policy rate three times since October, lifting it a total of 1.25 points, to 12.25 percent, to contain inflationary pressures and defend the real. Argentina’s central bank raised its key rate by 1.8 points, to 21.8 percent, in November, but that did little to contain an inflation rate estimated at 40 percent.

Notwithstanding the difficulties, few economists and politicians believe the region risks a repeat of the Latin debt crisis of the 1980s. Triggered in 1982 when Mexico announced it could no longer service its foreign debt, the crisis spread across the region as weak commodities prices and rising U.S. interest rates left most countries trapped under spiraling debts. Living standards fell sharply across Latin America during the “lost decade,” as it was known. The crisis dampened cross-­border bank lending and prompted the Basel Committee on Banking Supervision to draft the first global capital standards. More-recent dips in the commodities cycle — in the mid-1990s and at the nadir of the global financial crisis, in 2009 — have been briefer and less painful, though tighter international credit played a role as well.

“This is not a crisis; it’s a slowdown,” says José Juan Ruiz, chief economist at the Inter-American Development Bank (IDB) in Washington. Most Latin American countries, with the exception of free spenders like Venezuela and Argentina, took advantage of the good times by adopting orthodox economic policies. They established independent monetary policy frameworks that squeezed down inflation and improved their fiscal positions. “Most countries prepared for the slowdown,” says Ruiz.

The rise of a sizable middle class with political clout should help entrench sound policies, analysts say. During the 1980s more than 30 percent of Latin Americans were living in poverty, providing a ready constituency for radical policies. Over the past decade, however, some 60 million people have joined the middle class, reducing extreme poverty to about 20 percent of the region’s total population of 604 million. These voters are reluctant to support populist policies that might threaten their newly achieved status.

Nowhere is this more evident than in Chile. A burgeoning middle class delivered a ringing victory last year to President Michelle Bachelet, a Socialist who campaigned for more-affordable university education. But many of those voters have turned against Bachelet, dropping her popularity rating from 58 percent a year ago to 40 percent today. “With the economy slowing down, middle-class Chileans are more worried about losing their jobs,” says Patricio Navia, a political analyst and professor at Universidad Diego Portales in Santiago.

To pull out of the current slump, Latin governments need to reduce their economies’ dependence on raw materials and develop other sectors of activity. The commodities boom was exhilarating while prices of metals, grains and minerals were soaring, but it has left economies sputtering today. Commodities accounted for 53.2 percent of the region’s export revenue in 2013, according to IDB data, not far off the 55 to 60 percent range that prevailed in the 1990s. “What is sad is that Latin America has yet to identify other domestic engines of growth,” says Alberto Ramos, senior Latin American economist at Goldman Sachs Group in New York.

The region’s close economic ties with China, which seemed to promise a lifeline in the 2000s, stand in a different light today. Latin America’s two-way trade with China mushroomed from $10 billion in 2000 to $241 billion in 2013, according to United Nations statistics; commodities accounted for fully 88 percent of the region’s $100 billion in exports to China in 2013. Latin America’s trade with China approached its $343 billion of trade with the U.S. in 2013, says the U.S. Department of Commerce, but there’s a difference: “The U.S. engages the region with a much wider variety of imports and exports,” says Margaret Myers, director of the China and Latin America program at the Inter-American Dialogue, a Washington think tank.

Latin countries need to improve their terms of trade by boosting the proportion of manufacturing exports. That will require policies promoting freer trade, improved industrial productivity and massive infrastructure investments. “These are not magical solutions,” Ramos says. “There is no need to reinvent the wheel.”

So far, only Mexico has made a successful transition to manufacturing exports, thanks to its integration with the U.S. economy through the North American Free Trade Agreement. Other countries have relied on protectionist barriers to restrict the flow of quality imports and allow domestic producers to dominate local markets.

IDB president Luis Alberto Moreno insists that regional countries have the capacity to reform themselves. “Latin America has shown discipline in applying fiscal and monetary policies,” he says. “But growth will only come through more infrastructure projects, higher productivity and other structural reforms.”

NO COMMODITIES BUST HAS BEEN more sudden, or more painful for many Latin economies, than the precipitous drop in oil prices. With U.S. shale oil production rising and Saudi Arabia determined to maintain output and regain market share, the benchmark Brent crude plunged from $110 a barrel last June to less than $50 in January before recovering to just over $60 in mid-February.

The impact on Latin American producers has been devastating. Venezuela is in free fall because reduced oil revenue is widening its budget deficit and raising the risk of default. In Mexico, where historic energy reform last year opened the country to outside investment in oil and gas for the first time since 1938, the drop in prices has lowered expectations that the oil majors will rush to bid for fields up for auction later this year.

The impact on Brazil has been dramatic, which is ironic considering that the country is not yet an oil exporter. Brazil is the second-largest exporter of soybean meal, after Argentina, and the world’s second-­biggest exporter of iron ore, after Australia, and it has suffered from the decline in prices of those commodities. Soybean prices fell from a record $623 a metric ton in August 2012 to $358 at the end of January 2015, and iron ore slumped to $67 a ton in January from $128 a year earlier because of the slowdown in China’s growth.

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