Latin America is Beating Poverty -- Sort Of

By Andres Oppenheimer

In sharp contrast to the gloom surrounding U.S. and European economic news, a new United Nations report has good news for Latin America: it says that poverty levels in the region have dropped to their lowest levels in 20 years, and will continue falling in 2012.

Predictably, the press release from the U.N. Economic Commission for Latin America and the Caribbean (ECLAC) drew celebratory headlines throughout Latin America. Government officials in several countries cited the news to back up their assertions that, for once, Latin America is doing much better than the First World countries who until recently taught them lessons about economic management.

But are the U.N. figures about Latin America as great as they sound? Before we get to that, let's take a look at the ECLAC report, and what the group's executive secretary Alicia Bárcena told me in an interview shortly after its release.

Between 1990 and 2010, poverty in Latin America fell by 17 percentage points, and extreme poverty fell by more than 10 percentage points, to 31 percent and 12 percent of the region's population respectively, the U.N. report says.

More recently, between 2009 and 2010, the biggest drops in poverty took place in South America's commodity-exporting countries, such as Peru, Ecuador, Argentina, Uruguay and Colombia. By comparison, Mexico and Honduras, which are closely tied to the ailing U.S. economy, saw a slight increase in their poverty levels since the 2008 U.S. economic crisis.

Asked whether Latin America's declining poverty rates are a trend that is likely to continue for the foreseeable future, or whether the trend will reverse if world commodity prices drop, Bárcena told me she is optimistic about the region.

The decline in poverty over the past two decades "is great news for Latin America," among other things, because it creates an expanded middle class that will generate new economic activity independent of outside factors, she said. In addition, countries such as Chile and Brazil have created social programs that have proven to be very effective in reducing poverty, she said.

But doesn't your report paint an incomplete picture, by failing to point out that the region's poverty reduction was marginal compared to that of Asian countries that were much poorer than Latin America's only a few decades ago? I asked.

In fact, ECLAC's own estimates show that in 1990, China and its Asia-Pacific neighbors -- excluding Japan -- had more than 60 percent of their total population living in extreme poverty, while Latin America had only 23 percent of its population living under such conditions.

Since that year, Asia's extreme poverty rates have dropped by nearly 50 percent, while Latin America's by only 10 percent.

"It's true, and it's very telling," Bárcena told me, referring to Asia's much more dramatic drop in poverty. Asian countries have done better because they have a better distribution of income, a greater economic integration, and better education, science and technology levels, she said. Latin America continues to be the world's region with the biggest gap between rich and poor, she added.

My opinion: I don't want to be a party-pooper, but I found the headlines about Latin America's declining poverty rates to paint only the bright side of the picture. The fact is that much of Latin America's recent economic boom was due to China's massive purchase of the region's raw materials, something that is likely to diminish somewhat in the near future.

There are three big reasons why Asian countries have reduced poverty so much faster than Latin America's: education, education and education.

Most Asian countries have stimulated a culture of quality education, emphasizing academic rigor, and the internationalization of their universities that is allowing them to produce increasingly sophisticated goods that produce more and better jobs. At the same time, most Latin American countries have focused on expanding school coverage with little concern about academic excellence.

I'm optimistic about Latin America, too. The region has its best chance in recent memory to take off on the international scene.

But I'm afraid that looking at its recent gains in the fight against poverty without putting them in a world context -- and not embarking on the quest for improving education standards -- will lead to more complacency, which is the biggest enemy of competiveness and progress.

World - Latin America is Beating Poverty -- Sort Of | Global Viewpoint