As the world grapples with generating employment, growth and innovation, a new club of countries has emerged as an engine of regional growth. Through improved governance, liberalized trade and stable macroeconomics, the economies of Mexico, Colombia, Peru, and Chile have rallied in recent years.
Rather than following the lead of the increasingly protectionist and interventionist Mercosur countries, these Pacific economies have taken their cues from the Asian tigers of the 1980s, quietly becoming economic overachievers. Given the rise of China and the American pivot to the East, the Puma countries are poised to play a significant role in the emerging Pacific century.
Statistically, the Pumas are growing by leaps and bounds. They have averaged 4.69 percent annual growth since 2005. The Colombian, Chilean and Peruvian middle classes expanded more than 10 percent between 2000 and 2010, while some estimate that the Mexican middle class already accounts for more than half the population. Inflation, a great scourge of Latin American economies, has been held within central-bank bands across the Puma economies. Puma sovereigns are investment grade, and their issuances are hot.
On paper, the Pumas roar. But what is driving these figures, and are they sustainable?
The Anatomy of a Puma
Good Governance: Latin America is notorious for weak democratic institutions, short time horizons and malleable “rules of the game.” Yet, in recent years, Puma countries have generally adhered to democratic norms, and transitions from right-leaning to left-leaning executives (and vice versa) have been relatively smooth. Countries that have bent to the left have done so without adopting a statist model. Countries that have tacked right have done so without eliminating social programs or leaning on the barracks. Crucially, Puma central banks maintain the independence required to pursue macroeconomic stability.
Trade: In contrast to the increasingly protectionist Mercosur bloc, Puma countries have aggressively pursued liberalized trade. While all four have free-trade agreements (FTAs) with the U.S., Puma countries have expanded well beyond the Western Hemisphere, participating in numerous Pacific trade pacts. All four Puma countries have successfully negotiated FTAs with the European Union; Mercosur has not. The strategy has paid off. Resource-rich countries such as Peru and Chile have keyed into East Asian growth. Meanwhile, Mexico and Colombia have exploited closer ties to the United States. All told, Puma exports increased by an annual average of 4.66 percent since 2000 and are forecast to grow 6 percent annually through 2017.
Private Consumption and Investment: Funneling raw materials to global superpowers is old hat for the Andean Pumas. However, increases in private consumption hint that recent success represents more than simply capitalizing on Chinese growth. As poverty decreases and the middle class expands, Puma countries are forecast to see private consumption expand at an average annual rate of 5 percent over the next six years. This represents a newfound motor for domestic growth.
The Road Ahead – The Pumas in the Pacific Century
The Pumas have achieved success by eschewing ideological grandstanding and pursuing free trade. However, there are indications that Pacific trade may become increasingly politicized. The U.S. is actively pursuing a Trans-Pacific Partnership (TPP) apparently designed to preclude Chinese participation. China supports a separate Pacific FTA that does not include the United States.
Mexico, Peru and Chile are participating in the TPP negotiations, and Colombia has expressed interest in joining. However, Puma strategies may differ. Persistent Chinese growth would guarantee strong commodity prices and demand—a boon for Chile, Peru and (increasingly) Colombia. However, Chinese growth is, to a degree, predicated upon the strength of its manufacturing exports, a sector in which it competes directly with Mexico. Mexico is poised to take advantage of any Chinese slowdown, which would, in turn, be detrimental to Peru and Chile.
Prepared to Pounce?
The Pumas face significant challenges. The notion that Mexico is emerging from its drug war would be news to citizens of Guerrero, where the murder rate rivals that of Cote d’Ivoire. Colombia still had one of the world’s highest homicide rates in 2010. Peruvian growth is predicated on fickle commodity prices; its democracy upon a fickle electorate. The gains of recent years are not irreversible. Should export prices tumble, or should the U.S. recovery prove short-lived and underwhelming, the basis of recent Puma success could deteriorate.
Yet, the Pacific Pumas have a genuine opportunity. They have embraced trade and stability at precisely the moment that their region has emerged as ground zero for global growth. In recent regional history, Venezuela and Argentina have demonstrated that an economic bonanza can be easily squandered on subsidized gasoline and metro passes. Time will tell if the Pacific Pumas are prepared to run with the tigers of the East, or if they will be ensnared in the traps of the past.
A version of this article appeared on the Bertelsmann Stiftung “Future Challenges” website here.
