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This Time, The US Should Learn From Latin America

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Where are all the experts on deficit reduction and government restructuring when we need them the most? At the very moment that the US and Europe are going against all the advice that multilateral technocrats in the IMF and the World Bank are known for dispensing, they seem to have disappeared.

Over the past several decades, Latin American countries have become well accustomed to multilateral organizations in Washington and Europe arriving to pontificate about debt, deficit spending, and ways to open and restructure the economy to promote growth. This time around, they should stay in Washington - or Brussels, or Paris.

In 2011, the US deficit was 8.7 percent of GDP and total debt reached 100 percent of GDP. Europe's situation is equally dismal. On average the continent's debt is 87.2 percent of GDP and the average deficit was 4.1 percent. However, many individual economies are in worse shape: The UK and Spain are running deficits of 8.3 and 8.5 percent of GDP and Ireland is at 13.1 percent. The UK and France both have debt levels over 85 percent of GDP, Italy's has reached 120 percent, and Greece's debt is a whopping 159 percent.

Latin America, by contrast, has navigated the crisis more effectively. The economic debacle that
crippled the developed world had little impact in the region. By 2010, regional growth was booming at an average of 5.9 percent and cooled only slightly to 4.3 percent in 2011.

What's even more impressive is the maturity of the region's fiscal response to the crisis. Countries in the region had spent the years between 2003 and 2007 balancing their budgets and by 2007, the region had achieved an average 0.3 percent budget surplus. At the height of the crisis, the regional average deficit rose to 2.9 percent and then fell back to 1.5 percent in 2011, even as many countries pursued fiscal stimulus measures. Currently, the regional debt average is only 28.1 percent of GDP.

This is in stark contrast to the fiscal situations in the US and Europe. While you don't hear about it much in Washington, after many years of lecturing it's time that the developed world learned from the example of Latin America.

Indeed, Latin American countries would be right to fear that unless the developed world gets its house in order, its own well-run economies could be negatively affected. The region's primary commercial partners are still Europe and the United States, and as their crises are beginning to hit Latin American exports, it could impact domestic growth and employment.

But this relationship should also not be overstated - the region's tradition reliance on the developed world is beginning to change. Latin America is diversifying its sources of commerce and investment, and economic ties with China, India, and the Middle East are playing an ever greater role. While the crisis in the developed countries will still weigh on the region's growth, there is a new reality in the 21st century: "emerging" powers are slowly coming to dominate the economic and geopolitical scene.

Latin American multinationals are becoming world players - no longer content to be mere primary-good exporters as in the past, they are staking claims as major investors, launching projects and investing in local operations all over the globe. "Multi-latinas," as these companies have become known, include firms such as Embraer, Bimbo, Vale, Techint and Odebrecht. They exemplify the new age of "South to South" economic and commercial relationships.

Nor is this simply another story about the expansion of Chinese multinationals or Indian technology firms. Brazil's investment bank Banco BTG Pactual recently announced $1 billion for an African investment fund, capitalized by regional investors. Another Brazilian giant, Vale, is investing billions Middle Eastern mining facilities. Mexican billionaire Carlos Slim is renewing his push to gain a foothold in the European market with a bid for the former Dutch monopoly telecom company Royal KPN. This is in line with Chilean entrepreneur Raul Rivera's argument in his recent book "Our Time: Latin Americans in the 21st Century," that Latin America is emerging as a driving force of entrepreneurship, innovation and economic dynamism - and that the developed world would do well to pay attention.

Obviously, in the words of the Financial Times' Philip Stephens, "the West is not finished." It is still by far the richest region and emerging economies such as those in Latin America have their own stubborn problems - poverty, unclear judiciaries, low quality education and persistent inequality, to name a few. However, when it comes to economic management, the US and Europe have a lot they could learn from Latin America these days.