2021 - In like a jaguar, out like a bipolar capybara
By the end of the year, economies will be improving. But populations may still be angry.
Happy New Year! I think it’s everyone’s hope that 2021 is better than last year.
Given how things went in 2020, there are some obvious cautions regarding predictions about 2021. At the beginning of January 2020 I did not predict being locked down in Bogota for nearly the entire year while helping my kids navigate virtual school due to a global pandemic.
So with that warning in mind, today’s newsletter tries to set the stage for the big picture narrative of the year. Things are going to get worse in the coming months, bottom out, and then begin to get better. But “better” doesn’t mean great. It will be a confusing and unequal recovery for much of the region, with leftover resentments and debts impacting politics and economics for years to come.
As cathartic as it felt to flip the calendar, the first few months of 2021 are likely to be rough as the region deals with the fallout from 2020. Coronavirus cases will increase after the holidays, straining hospital systems. Political tensions over government failures to manage the pandemic and associated recessions (as well as all the concerns raised in protests pre-pandemic) will boil over in some countries. Security will worsen, with homicides and violent crime rising in most countries in the region.
The good news is that the situation should turn around at some point during the middle of the year. There is not going to be one moment where we can say the turning point occurred, but by the end of 2021, economies in nearly every country should be rebounding in a way that the poor and middle class begin to see their situations improve.
Helping that turnaround, vaccine distribution in a majority of the region’s countries should be in full swing by late quarter three. I optimistically expect some Latin American countries to be above 50% vaccination levels by the end of the year, well ahead of the schedule predicted by many of the region’s governments.
I feel fairly confident in saying that January 2022 should look a lot better than January 2021 in terms of economic growth and employment. However, growing economies may not bring happier populations.
An unequal economic rebound (plus a lot of debt)
In the US, there is a discussion over a K-shaped rebound. I’m not quite sure the exact shapes that will occur, but a similarly divided rebound is already taking shape in Latin America and likely to accelerate in 2021. Certain sectors will do quite well, even as many of the region’s poor struggle to regain their middle class status that they had pre-pandemic. The lives of both the poor and the wealthy will be improving at the end of the year, but the divide between them will be growing.
That is a potential political problem. Economic inequality and the inability of governments to meet the demands of the poor and middle class were a driving force behind the protests in late 2019. Even if the situation improves for Latin America’s poor, there will be resentment at the divided recovery. There will also be disillusionment at governments’ inability to address the health, education and economic demands that the majority of the population have.
Meanwhile, the growing deficits and debts within government budgets are going to create pressures on governments to commit to higher taxes and austerity measures. Some governments will be able to kick the can down the road another year or two while others may successfully negotiate for debt relief internationally. No matter the delays and negotiations, responsible politicians are not going to be able to offer significant spending programs with new money that simply doesn’t exist.
This is a space in which populist politicians can do quite well. One year ago, I wrote that Latin America was experiencing an anti-incumbent moment. That certainly played out in 2020 and continues into 2021. Perhaps most frustratingly, the technocrats who faced failures during the pandemic are likely to be punished much more harshly by their populations than the populists.
Thanks for reading
Today’s newsletter is a general scene-setter for the year and I’m going to try to offer more specific predictions about individual countries in the weeks ahead along with some data.
While most of you probably caught it, bipolar capybara is obviously a reference to the satirical Venezuelan news website.
If you want to be added to the newsletter distribution list, please enter your email at https://boz.substack.com/ or email me at boz@substack.com and I will add you. This newsletter is supported by paying subscribers. Thanks to everyone who pays to subscribe!