Thanks for your Graces

Realtors in the U.S. South repeat this prayer on daily basis while asking the universe to preserve the leaders of Argentina, Brazil, Mexico and Peru in good health.

Indeed, they have survived the 2008 financial meltdown, Covid-19 and other tragedies by means of being on the receiving end of enhanced capital flight from those countries.

Frightened middle class families are placing their savings in the U.S. where they know they will not be hit by devaluation, abusive taxation or foreign exchange stopgaps.

Capital flight from emerging markets has reached one trillion U.S. dollars. Latin America's contribution is a little bit over half that figure. This allows us to better understand the relative stagnation of Latin America.

Latin America is experiencing a continuing financial hemorrhage that impairs economic function. That half a trillion that flows to the U.S. and to a lesser extent to Europe is the lifeblood that the economic system needs to grow, create employment and build a healthy middle class that through aggregate demand promotes innovation and more growth.

The problem is that for this capital to stay home ,the first requirement is political stability in terms of public policies that are focused on creating wealth.

Such policies have three ingredients. First, they are upheld for several decades. Second, they promote supply growth. Third they strengthen respect of private property, intellectual property, rights and contracts.

A cursory search to determine the existence of such policies in the region reveals a significant absence except for Barbados, Chile, Costa Rica and Uruguay.

These are also the countries that are more developed and where capital flight is the least. These countries thus seem to be destined to become development hubs in the region. These countries indeed not only are strengthened by the infusion of their citizens savings into economic activity but also are magnets for foreign direct investment. They thus might become the Latin American Tigers .

Meanwhile, those incompetent heads of state thanked by the U.S. Association of Southern Realtors have bled not only their own savings but failed to attract foreign savings as foreign direct investment has dropped from $260 billion in 2012 to an estimated $130 billion this year.

Given that infrastructure replenishment needs in the major economies of Latin America amount to $90 billion, this scant inflow of foreign direct investment will have little impact upon today's growth constraints.

Worse, it will not go to infrastructure, as investments in this space demand long term public policy stability. This situation will worsen with time as lack of proper infrastructure further increases economic paralysis because its enhances the cost of doing business in these economies outpricing their products in the international market where they need to be as efficient as the Asians and even Africans.

In short it seems as the southern realtors of the US will continue to enjoy for many years a Latin bonus.