LATAM e-News – Octubre 2018
Arturo´s Letter

Arturo García Rosa
President & Founder, SAHIC


South America: ten years of change

I like to say that the only permanent thing in life is change. In fact, this statement does not seem to be a finding, but rather a truism.

What undoubtedly happens, and more and more, is that the speed of change follows the rhythm of today’s life, where communications have substantially transformed things and, in that environment, almost all truths, even truisms, often go unnoticed and, what is even more dramatic, lies, even the most absurd ones, can appear to us as irrefutable truths.

It may sound unusual to us, it may make us feel vulnerable at times, but there is no doubt that that’s the way things are today.

And in this state of affairs, the truth becomes a very disputed prize behind which the most unthinkable ” tricks ” can be hidden, some of them understandable, others hilarious, sometimes with altruistic purposes, others not so much, and sometimes, hiding the pursued aims.

We forget that there are as many realities as there are observers of the same situation. A simple example is when someone sees from the back the same person that I see from the front.

The real estate bubble and other things

In 2008, just as SAHIC was starting, a Republican ruled the United States – George W. Bush – and it was in his government that the real estate business showed itself crudely as a new face of the financial bubble crisis that society has been experiencing for many, many years.

According to Canadian economist John Kenneth Galbraith, “there must be few areas of human activity in which history tells as little as in the field of finance. As he states in his book “Short history of financial euphoria”, “financial crises and bubbles have been repeated in a more or less cyclical way since 1637 when investment in tulip bulbs in Holland inflated prices to the point where a bulb could be worth the same as a house”.

Even more so in our times, the most remembered period before the subprime crisis was the dot-com bubble (1997-2001), where any new development of internet companies could be worth not what a house but what the Waldorf Astoria or the Plaza Hotel in New York, and even the two together, silly things…

The truth is, especially if we are standing on the same side of the person in front of us, speculation is as old as the human being and any instrument is valid for those who feel attraction and passion for it.

Dot-com companies, oil, other commodities, garbage mortgages, it doesn’t matter, the worst thing is the abstinence syndrome, those who are dedicated to adding value through different financial variables, are the main actors in the creation of the euphoria that inevitably leads to crises.

As we said, 2008 shocked the United States with the most important crisis since the remembered Great Depression of 1930.

As never before, this crisis impacted the most advanced countries in a colossal manner without making a direct hit on our region. The eternal weakness of the lack of credit became at that time the best vaccine to keep the main markets immune, if in the case of emerging economies one can stay somehow immune in the world where the United States, Germany and its allies, Russia and China, play a league game to which one is not invited to participate but to contribute with its costs.

The 2008-2018 decade in South America

In general, with the distinctive features of each market, it has been a favorable decade for the main markets with the clear exception of Venezuela and some other damages that could have been avoided bur finally occurred such as the case of Argentina.

In 2008, with the exception of Colombia governed by Álvaro Uribe, the majority of the South American countries were under a more or less clear populist bias, that in some cases, devastated not only the economy of that country, but also wiped out a great amount of the resources and personal capabilities of those that saw that there was no distinction between effort and sinecures.

Not all the cases were the same, Peru stood out singularly. It had a president (Ollanta Humala) with a clear left orientation, that quickly aligned as a pro market and facilitated that the economy of his country followed the path that has turned it to be the one with the highest growth in this decade. Let’s leave corruption subjects aside, not for being less important, but because they need a specific treatment.

Colombia, together with Peru and followed by Chile were the paladins of this decade, showing the rest how, with less background, less arrogance, and much more effort, dedication and conviction, you can overcome difficulties and meet objectives that, sometimes might seem unreachable.

Brazil is a case apart, stumbling during the last years, a dismissed president, an ex president in jail and a large recession that, on the contrary of what Latin American books say, achieves to overcome in the middle of one of the most serious politic crisis. Which, leaves us two clear notices.

First, one thing is the personal recovery different from the national one, or there is no personal recovery without a collective dream. Politics are the result of a society but society takes over and does its thing. Otherwise, it would not have been possible to get out of the tremendous recession that they managed to leave behind in the chaos described.

Second notice, not a small one by the way, is the challenge to imagine what a society will be able to achieve once a certain grade of predictability in its institutions is recovered.

Paraguay, the small country without sea access centered in what it is possible for them, and without wasting efforts in pointless struggles, grows in a way that no one would have imagined and establishes itself as a clear alternative for many investors of the region.

Uruguay, faced with its eternal challenge of being in the middle of two big ones, Brazil and Argentina, and trying to find its own destiny, has maintained a step above what from a distance does not seem so easy. Next year there will be elections and the opposition is excited that the time for change is coming.

Argentina, sadly reminds me the definition of the celebrated writer Jorge Luis Borges regarding Peronism. It seems that for a society that has not been able to overcome the stigma of “a national and popular movement” (Juan Domingo Peron dixit) that 73 years after it burst into the life of the country it has demonstrated that its “doctrine and purposes” are one of the so many “truths” that only today’s world can hold as true, whichever the side we are standing in front of the same person.

Borges said about Peronism: “Look, I detest communists, but at least, they have a theory. Peronists instead, are snobs.” “Peronists are neither good or bad, they are incorrigible.

One could argue that it is just an opinion, or that it is out of scale and time, other, in the typical Peronist argot could say that it comes from a “gorilla”. Historically Peronists call gorillas to those who have opinions different than theirs. The paradox is, that today, any aim to deepen in the scope of the term “gorilla” incredibly leads us to conclude that it has been designed to define those who for the last 30 years, have taken advantage of the symbols of a movement that was never more than the support for a dictator disguised as a democrat.

The future in the region

Trump era has changed not only the relation with the main powers of the world, but also, even when they are not a priority in the agenda of the present administration of the northern country, with the Latin American countries in general.

From extreme globalization to the most rancid nationalism is the path (which a few years ago would have been unthinkable) leaded by the present president of the United States.

The commercial war has started and it carries long term consequences that are not yet fully known, but for the time being we know that US dollar has become a strong currency again, that emerging economies are facing new challenges where credit access has become more difficult. In some cases, in a substantial way, ask president Macri if not.

This will continue at least until the end of the Trump administration, which we don’t know if it will lead to a reelection, soon we will have a thermometer of the mid-term elections.

Now, which is the most outstanding difference in almost all the region. The governments which were more or less populists that were a majority in 2008 have left room to different biases. Macri has started the way to follow Peru and Colombia, which for years have been managed with pro market economies. Piñera followed in Chile. Abdo Benitez has just replaced Cartes, which with some nuances ensures the pro market bias. Lenín Moreno in Ecuador, even though he is an ex Correa follower, today more aligned with an open and pro market economy. Brazil has just confirmed that Bolsonaro arrived to end with PT years, the traditional Lula party.

With the exception of Uruguay, a moderate left, and Bolivia, populisms, for the time being, seem to be a thing of the past.

Reality has knocked the doors of the common man, that in Latin America is basically a descendant of those who came in the ships, mostly from Spain and Italy. Those whose grandparents and great-grandparents have left a clear teaching that, even though when the maelstrom of the modern world seems to turn it in a doubtful truth, it ends up to be true whichever the side on which you are standing in front of the same person, the values and the effort are the only ones that can take a person and a society forward.

No matter on which side we are facing the person we now have in front, in any case, the future is in our hands, not in the hands of those who come to promise us a better world in which our greatest effort is to flatter them and profess them blind faith.

It is clear that, even not without difficulty, the future in the region will be spectacular.