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The Rising Middle Class in Latin America

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When people are asked to picture Latin America, an image of poverty usually comes to mind. Yet while it is true that Latin America has historically been a region of high rates of poverty and income inequality, income inequality has in fact declined in 13 of 17 countries as measured by the Gini coefficient. The Gini coefficient is used to determine the level of income inequality in a country wherein a score of 0 is given to countries with complete equality (countries whose citizens have the same income) while a score of 1 is given to perfectly unequal countries (those in which one person owns all the income).

Recent data by the World Bank suggests that there has been a successful push to reduce poverty in the region, with the number of people living in extreme poverty (defined as those living on less than $2.50 a day) halved to 12.3 percent between 2003 and 2012. The largest proportion of the population, at 38 percent, includes those that are most vulnerable to falling back into poverty. This last part includes those making between $4-$10 a day. The middle class in Latin America is growing extremely rapidly at 34.3 percent of the population and is set to overtake the most vulnerable to become the largest segment of Latin America. The middle class is defined as the number of people who earn between $10-$50 a day.

Yet these numbers are a bit misleading. There continues to be a large degree of inequality between Latin Americans of different ethnicities. In Brazil, 76.4 percent of primary school children who are descended from Europeans are enrolled in school, while only 65.3 percent of indigenous or African children are enrolled. Similarly, in Chile 97 percent of families of European descent are enrolled in school, while 74.4 percent of children of indigenous or African descent are enrolled.

This is significant because as the middle class expands, it’s going to be able to expend more money on disposable goods and fuel economic growth. It will also be interesting to see what happens as the middle class demands more of a stake in the political process.

– Jeff Meyer

Sources: World Bank, IARIW
Photo: Not Adam and Steve

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Global Banana Disease Threatens Production

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In the past few weeks we have seen the rapid spread of what could become a devastating threat to the world’s banana population – a fungus known as Panama Disease Tropical Race 4 (TR4).

TR4 is a soil-born fungus that attacks plant roots and is now known to be deadly to the Cavendish banana, which is the world’s most popular and valuable banana crop, making up 95% of banana imports.

The fungal banana disease began its devastating journey in Southeast Asia, decimating tens of thousands of crops in Indonesia, China, Malaysia and the Philippines. TR4 has most recently been discovered in Jordan and Mozambique, indicating its spread beyond Asia to Africa and the Middle East.

The UN Food and Agriculture Organization (FAO) notes that there is already a risk that the fungus has spread to the world’s most important banana-growing areas in Latin America. These countries include Ecuador, Costa Rica and Colombia, where hundreds of thousands of people rely on the banana trade to make a living each day.

Not only is the banana an essential component of more than 400 million people’s diets, it is also an essential component of their monetary livelihood. According to one estimate, TR4 could destroy up to 85% of the world’s banana crop by volume, decimating thousands of plantations across the globe and severely impacting the $8.9 billion banana trade.

One leading banana expert, Professor Rony Swennen claims, “If [TR4] is in Latin America, it is going to be a disaster, whatever the multinationals do. Teams of workers move across different countries. The risk is it is going to spread like a bush fire.”

The FAO has further warned that TR4 represents an “expanded threat to global banana production” and that virtually all export banana plantations will be vulnerable in the coming weeks unless TR4’s spread can be stopped or new resistant strains developed.

The Cavendish banana is not the first to fall prey to such a fungal epidemic. Prior to its cultivation, the Gros Michel banana had been wiped out by a similar strain of the Panama disease.

Current researchers are attempting to discover new banana varieties that are resistant to the fungus or develop disease-resistant GM strains. However, a concerted effort between the industry, research institutions, government and international organizations will be necessary to prevent the spread of the disease.

– Mollie O’Brien

Sources: Bloomberg, The Independent
Photo: Flickr

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Puerto Rico Gets Credit Rating Downgrade

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Two of the three biggest credit-rating agencies in the world have downgraded the credit rating of Puerto Rico. Standard and Poor’s has downgraded the Caribbean state to “BB” status, two steps below its previous rating of “BBB-”. The new status indicates the uncertainties of global markets in the credit quality of the recession-hit country should it be unable to repay its $70 billion worth of municipal debt.

Moody’s downgraded the credit quality of Puerto Rico to Ba2 from Baa3. The new rating means “obligations are judged to be speculative and are subject to substantial credit risk.”

Both agencies have cited the uncertain economic and investment environment as reasons for the downgrade. Puerto Rico has an unemployment rate of 14.7% and a debt-to-GDP ratio of 70% and growing, and concern abounds about its liquidity constraints. Moreover, much of the island is impoverished. According to the latest census data, 45.6% of the island was living in poverty in 2011.

Many investors in the US hold Puerto Rican debt because the debt is high-yield and triple-exempt, meaning it is tax-exempt at the local, state, and federal level. As such, they are widely held in mutual funds, with many people unaware. A large number of funds have already begun selling off Puerto Rican debt to cut their losses, such as the Franklin Double-Tax Free Income Fund, which has sold off almost $64 million worth of bonds.

The cut in Puerto Rico’s credit rating comes amidst actions taken on behalf of the government to rein in spending and reform a large pension system. As borrowing costs rise, it remains a question as to whether Puerto Rico will be able to obtain more credit after scheduling a $2 billion bond offering this month.

A spokesman for the US Treasury has stated that there is no “federal financial assistance being contemplated” for Puerto Rico.

– Jeff Meyer

Sources: Moodys, Standard and Poors, The Economist, CNBC, CNBC, Census.gov
Photo: Bloomberg

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Poverty in Honduras Taking an Extreme Toll

Poverty in Honduras
Poverty in Honduras remains an issue. Honduras is the second-poorest country in Central America. With a population of approximately eight million people, poverty in Honduras affects roughly 60 percent of these individuals.

Out of 187 countries, Honduras ranked 121 on the United Nations Development Programs 2011 Human Development Index. This index is a “comparative measure of life expectancy, literacy, education, and standards of living for countries worldwide.”

Majority of the poverty in Honduras is reserved for the more rural areas. With 36 percent of the population living under conditions of extreme poverty overall, 50 percent of rural individuals live under these terms.

Over 64 percent of Hondurans live below the poverty level of $2 per day, according to Proyecto Mirador, a website that highlights the poverty in Honduras and what can be done about it.

Under- and unemployment rates in Honduras reside at 36 percent. The majority of families lack access to clean water and access to medical care or electricity is slim to none.

 

Rural Poverty in Honduras

 

Around 75 percent of the rural population lives in the central hillside areas in the interior highlands; this is also where majority of poverty in Honduras is the most prevalent.

An extremely evident force behind the country’s high level of emigration is the lack of employment opportunities in rural Honduras. With 28 percent of the country being agricultural land, 39 percent of the population is employed by the agricultural sector. However, the terrain in Honduras is extremely susceptible to erosion, causing much of the land to have come eroded over time. As a result of this, productivity has decreased immensely.

Natural disasters, such as hurricanes and floods, also plague Honduras. In 1998, Honduras was the victim of Hurricane Mitch, which destroyed much of the economic and social infrastructure in the country. This set back the economic advancement of Honduras for quite some time.

Subsistence farmers make up 70 percent of farming families. With extremely restricted access to land, these farmers depend on finding off-farm employment or remittances from other family members to support themselves.

Small-scale farmers “have access to more land and generally produce basic food crops, but many are forces to seek off-farm work in order to survive.”

Honduras stands as the country with the most unequal distribution of income in the region, according to the Washington-based Center for Economic and Policy Research. The majority of the wealth in Honduras is controlled by few families and national assets are treated as personal patrimony.

Aside from the extreme poverty that hinders Honduras’s growth, a surge in violence in recent years has resulted in the killings of politicians, human rights advocates, labor activists, journalists, and others. The road to improvement for Honduras is a long and enduring one, but the most important step will begin with socioeconomic equality.

– Samaria Garrett

Sources: Rural Poverty, Proyecto Mirador, LA Times
Photo: Pulitzer

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Poverty in Nicaragua

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Nicaragua is one of the poorest countries in Latin America, second only to Haiti. Most of the poverty in Nicaragua exists rurally (more than 80 percent,) but there are also very impoverished neighborhoods in the capital of Managua.  In fact, 43 percent of the Nicaraguan population lives in rural areas and 68 percent of them are trying to survive off just over $1 per day. Overall, 46.2 percent of the population lives below the poverty line.

 

Implications of Poverty in Nicaragua

 

The poverty in Nicaragua has caused extremely poor health conditions. HIV and AIDS have been a big issue; there have also been frequent reports of violence against women. Many organizations have been working to prevent the spread of HIV and AIDS and provide support for those with it, to empower women in their fight for freedom from violence and to empower the youth to encourage them to change their society.

Over the last 40 years, there has been extreme inequality and the country has had to overcome a cruel dictatorship, a gruesome civil war and multiple natural disasters. Another big problem is that the central government has historically marginalized the areas with large populations of indigenous people. The gross domestic product (GDP) per capita has decreased to only one-third of what it was in 1977 because of the combined impact of continued civil strife, trade embargos, unsuitable macroeconomic policies and institutional changes that are leading toward an even and more centrally-controlled economy.

Unemployment across the entire country is at 12 percent, but among the poor rural families, it is over 20 percent, so many rural families are migrating to other countries or urban areas within Nicaragua to find work. Remittances are vital sources of income for one in every five families and account for 20 percent of the country’s GDP.

Fortunately, the Nicaraguan economy has been growing substantially and has recently received lots of attention, having grown 30 percent since 2006, when the Sandinistas came back into power. Also, the GDP per capita has increased from $1,239 to $1,582 in the past year alone. Also, the Nicaraguan government has signed a lucrative memorandum of understanding with a telecommunications company from China to fund and build an inter-oceanic canal that is said to rival the Panama Canal.

Nicaragua is presently importing oil from Venezuela at solidarity rates, so Nicaragua pays extremely low prices up front for the first half of the oil and then pays low-interest loans over time for the rest. The Central Bank has said that macro-business development and social programs are funded by 62 percent of the Nicaraguan oil revenue.

Because of all of this news in the last five years,  extreme poverty (measured by a familial income of less than $1.25 per day) in Nicaragua has fallen from 11.2 percent to 5.5 percent. In 2011, Nicaragua was reported to have an economic growth of 5.1 percent, which was the highest in Central America.  Despite all of this good news, a considerable amount of work still needs to be done before it can fully eradicate poverty.

– Kenneth W. Kliesner

Sources: World Bank, Rural Poverty Portal, Health Poverty Action, The Tico Times
Photo: Pacific Lots

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CELAC Summit

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Leaders from across Latin America and the Caribbean met earlier this week in Havana, Cuba, to discuss human rights, peace and trade at the second Community of Latin American and Caribbean States (CELAC) summit. Thirty countries joined the talks, excluding the United States and Canada, which do not belong to CELAC, as well as leaders from Panama, Belize and El Salvador, which could not attend due to illnesses.

CELAC was created in 2011 as a counterweight to the U.S. influence in the region, with forums such as the U.S.-backed Organization of American States (OAS) and the Summit of the Americas, both of which do not include Cuba as a member.

Visiting heads of state declared a commitment to reduce poverty, inequality and hunger while proclaiming the region a “zone of peace.” Leaders such as Michelle Bachelet, the president-elect of Chile, the President of Brazil, Dilma Rousseff and the Cuban president Raúl Castro addressed the issue of poverty and education.

Raúl Castro called for the abolition of illiteracy while stating that the challenge in overcoming this centers around the lack of political will. The Cuban president then criticized the U.S. for its spying programs, the status of Puerto Rico and the current legal dispute between Ecuador and Chevron, the U.S oil company, for compensation over an oil spill that caused environmental damage.

Cuba has been criticized for cracking down on protests against the summit and is thought to have detained up to 40 activists prior to the event. The spokesperson for the U.S. State Department claimed that the CELAC countries “betrayed” democratic principles by supporting the Cuban regime during the summit.

In response to the U.S. criticism of the summit, Venezuelan President Nicolás Maduro stated that the U.S. should “swallow” their claim, which, moreover, reveals the “imperial interests” of the United States. The Venezuelan president further solidified his ties with Cuba by signing 56 new bilateral agreements worth $1,259 billion in the oil, energy and petrochemical sectors.

– Jeff Meyer

Sources: El Universal, Reuters, Independent European Daily Express, The Guardian, VenezuelAnalysis.com
Photo: Latin Times