The world in 2015: Stephanie Nolen on the transformation of South America and a Brazilian politician who garners mixed feelings

In Latin America, real gains for the poor, but tougher times ahead

The dry-cleaning shop was cramped and loud, with pressing machines hissing out billows of steam, and bales of laundry being tossed from one side to another. I walked into “5 a Sec” while reporting during Brazil’s national election in October, and the place made my head spin.

But the women I found inside, their hands a blur as they ironed and folded and tagged, were cheerful. I asked how they were planning to vote and they responded with a chorus of affection for President Dilma Rousseff. They talked about how much their wages have risen in the past decade, and how there is a new cap on how many hours they can be made to work. How their parents get pensions and their kids go to free daycares. How they have TVs and smartphones, and eat meat every day – not just once a week.

“Fifteen years ago, no one had any of these things – those who were rich were rich, and those who were poor were really poor,” Sandra Maria Silva told me, as she pressed a sharp crease into a sleeve.

Those changes earned Ms. Rousseff the women’s loyalty, and secured re-election for her left-wing Workers’ Party. Twelve years of its policies – such as a hike of more than 100 per cent in the minimum wage, and a cash grant to low-income families – have been responsible for a remarkable transformation. In a country of 210 million people, some 36 million have moved out of poverty since 2002, and while Brazil is perhaps the most dramatic version in South America, some variation of this change has happened nearly everywhere.

Between 2000 and 2012, Bolivia reduced the number of people living below the poverty line by a third, Venezuela by 22 per cent. The International Monetary Fund reports that in 2004, the proportion of Latin Americans living in poverty was 2.5 times those in the middle class; today, the two groups are about the same size.

“We have seen 70 to 80 million people – out of a total population of 600 million in Latin America – move out of poverty in the past decade,” says Augusto de la Torre, an Ecuadorean who is the World Bank’s chief economist for Latin America and the Caribbean.

“The region made unprecedented social progress.”

But that change may be about to grind to a halt. Economies across the continent have slowed dramatically; growth, most everywhere except resilient Colombia, is stagnant.

The expansion of the past 12 years was driven heavily by commodity prices, and in particular by China’s demand for South America’s minerals and agricultural products – a demand that has dropped off sharply. “It’s going to get ugly,” predicts Oscar Ugarteche, a Peruvian who directs the Latin American Economic Observatory from a base in Mexico City.

The “Chavismo” project in Venezuela, comprising the left-wing programs and style of government inspired by the late president Hugo Chavez, was funded by oil at over $100 a barrel; already the effects of crashing oil prices are showing up in increased political instability there.

Meanwhile, the price of silver, a key export for Mexico and Peru, has fallen 61 per cent in two years; the price of copper – the major Chilean export – by more than a third. “You’re going to have export revenues dropping massively, and very slow growth, and it’s … not going to generate employment,” says Mr. Ugarteche. “Governments can’t maintain the social spending, because they won’t maintain tax revenue, and you’re going to see many more people unemployed.”

Brazil is already making macroeconomic adjustments; Chile, Uruguay and others say theirs will come. There will also be budget cuts, of varying severity – mild in Chile, sharp in Brazil. The women at the Rio dry cleaners, and millions more like them, are not going to appreciate this, says Lena Lavinas, a professor of economics at the Federal University of Rio de Janeiro. “If there is a strong adjustment, there will be a strong reaction – because people have become used to having access to the consumer market.”

As much as they may be aware of the need for fiscal tightening – Brazilians are extremely worried about inflation, for example – they are reliant on programs such as the cash grants, and they are simultaneously looking to their governments to deliver even more. “The expectation in the region for improvement in infrastructure is very high: People who were poor can buy electrical appliances, maybe even a car; they are able to improve their housing conditions – but they find themselves living in cities that are congested, where health services are not very good, where public transport didn’t improve, where public education is not as good as private,” says the World Bank’s Mr. de la Torre.

It was demands for these kinds of services that drove hundreds of thousands of Brazilians into the streets for weeks of protests in 2013. But addressing them will be pricey. “It may cause greater tension, when you try to meet the expectations of these societies, with smaller budgets,” he adds.

The question now, Mr. de la Torre says, is whether governments can deploy social policy to minimize the impact on the most vulnerable. “It could well be that, in spite of the situation, governments make careful decisions in policy and are able to protect social-assistance programs that help maintain levels of consumption; that is not an impossible task.”

It helps that programs with the highest impact, such as the cash transfers, are comparatively inexpensive. For example, Brazil’s Bolsa Familia program, which targets poor families with cash transfers, conditional on parents sending their kids to school and getting them vaccinated, costs less than a half of 1 per cent of GDP.

There is one piece of good news in this prognosis: This economic slowdown, and the social impact it portends, differs from previous crises in the region in one significant way, and that has to do with the overall level of macroeconomic health in the region. Santiago Levy, a Mexican economist and vice-president of the Inter-American Development Bank, explains that foreign-exchange reserves in Latin America are much higher than they used to be, which will largely protect countries from the enormous depreciations they used to see when terms of trade soured.

“Nobody is worried about old-style macroeconomic crisis or collapse, the kind that used to set the region back 10 years,” says Mr. de la Torre. “The worry is that progress may stall.”

Mr. Ugarteche predicts that Brazil and others will need to cut back cash-transfer programs, but that they may be able to maintain elevated investment in areas such as education, which will pay dividends in the long run. And he predicted that changes and conversations that have started – about tenacious inequality in an otherwise changing Brazil; gay rights in Chile; greater equality for women across the continent – won’t end with the economic slowdown, either.

“Some of those things are going to stick,” he says. “They improved because of policies of progressive governments, and those policies are going to remain with or without economic growth.”

Mr. Levy says the key to change will be a renewed push for higher productivity levels: “Hopefully, people will realize it’s important to do other things than just wait for the storm to pass – that they will work on internal engines and not just rely on global factors.”

In Rio, Prof. Lavinas says the entire region must continue to work to diversify exports out of commodities, an idea that has been espoused, but barely pursued, for more than 50 years.

“We’re still the most unequal region in the world,” she says. “We have to find a way to keep working at this. And it’s going to be difficult. Really difficult.”

A Brazilian agriculture minister invokes ire and applause

Kátia Abreu, 52, is as adored in some constituencies in Brazil as she is loathed in others. One person who clearly admires her is Dilma Rousseff: The Brazilian President calls Ms. Abreu a good friend, and has made her minister of agriculture in the nation’s new administration – to the horror of environmentalists and indigenous people.

Ms. Abreu was a wealthy homemaker in the Brazilian agricultural heartland in the mid-1980s when her rancher husband died in a plane crash and left her with three small children and a massive cattle and soybean farm. Everyone in the macho world of ranching advised her to sell, but she chose instead to plunge into learning how to run a farm – and emerged as the most powerful figure in the agricultural revolution that has played out here over the last 15 years.

She was elected chair of the farm lobby – the National Agricultural Confederation – whose members contribute about 20 per cent of Brazil’s GDP. She pushed them to professionalize – by adopting technology, and seeking financial credit to innovate – and to tone down their guns-and-bluster conflict with squatters and indigenous people. She says Brazil’s agro-industry should be recognized for taking the country from food importer to major exporter, all while improving land productivity.

But Brazil’s big farming sector has come into repeated conflict with environmentalists worried about deforestation, with indigenous people, and with the rural poor who decry the level of land concentration. Ms. Abreu, who was first elected in 2002, has pushed for a series of laws that outrage the environmental movement: One would make it illegal for indigenous reserves to be declared where there are agrarian conflicts (which means the country would never see another reserve). Another allows farmers to access credit even if they have been found to be carrying out illegal deforestation and land clearance.

In 2012, her brother’s farm – which prosecutors alleged, but have not been able to prove in court, was actually hers – had been found to be using slave labour. Greenpeace gave her its Golden Chainsaw Award in 2010, and the landless people’s movement staged large demonstrations when word leaked that she might become agriculture minister.

She isn’t bothered. “The left – above all the environmental left – insists on demonizing the rural producer,” she wrote in a newspaper column in 2013. “It declares itself the only legitimate defender of people’s rights, but acts innocent while it defends the hunger … of the people.”