Bumpy Road Ahead for Latin America

Pass by a Shell or Chevron gas station and the prices for gasoline…are unbelievably low. There was a time, where paying $20 would almost fill the tank up half way, however now for some cars $20 can get you about 75% of a full tank. In February 2011, prices per barrel of oil rose above $100 USD (Washington Post). It seemed as if prices would remain around the $100 per barrel price; the oil cartels would profit and the petro world would keep turning.

Reality check: prices can only rise so much until they plummet and the market decides to balance itself out. The problem with the oil industry is not just the development of alternate energy sources, but the oil surplus that has been produced in the market has collided with a crippled world economy. Cartels such as OPEC have refused to drop their production quotas despite the oil price crash. Prices per barrel fell below $70, according to The Washington Post.

Most Latin American economies have been switching to oil exploration, extraction and exportation. However, the region, along with the rest of the world, is about to be the titanic hitting its iceberg, with something unseen looming in the water. The dropped oil prices are just one reflection of the weakness of the world economy. Great development within regions such as Latin America has been achieved within the last decades, but the future does not look bright.

“These economies thrived because of their sound, rule-based policy frameworks, rising commodity prices, and favorable global financial conditions,” said IMF director Christine Lagarde at a regional summit in Santiago (ABC News). Lagarde continued, “the road ahead looks increasingly bumpy,” for the region’s economy.

Regional growth is supposed to remain at about 1.3 percent for this year, and raise slightly to 2.2 percent for 2015. Latin America’s economy has generally been heavily dependent on export goods, however demand and commodity value will continue to slow as the market slows.

IMF Chief Legarde speaking in Chile on the outlook for Latin America. Photo: Mercopress

What the region is posed with now, is shifting its focus from being cultivation and export based to developing infrastructure. The region must now (like it should have been doing a long time ago) begin greatly investing in structural reforms, such as education to ‘lift productivity and create economic diversification’ according to IMF director Lagarde.

“Latin America’s middle class had grown by about 50 percent since 2003, partly because of a reduction in labor income inequality, including through rising minimum wages,” according to Lagarde.

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