New consumer class powering economic growth across South America

From Paraguay to Chile and Brazil to Peru, a growing middle class is powering economic growth that is helping to lead the worldwide recovery. And the changes can be seen acutely in Argentina.

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Washington Post Foreign Service
Friday, February 25, 2011; 9:48 PM

USHUAIA, ARGENTINA - Here at the end of the Earth, just 600 miles from Antarctica, tourists hike over glaciers and flock to rocky beaches to photograph penguins and 700-pound sea lions.

Tierra del Fuego, or Land of Fire, on the southernmost tip of South America, is as breathtaking and forlorn as its name suggests. This island is also a little-known motor of manufacturing that churns out cellphones and LCD televisions for a seemingly insatiable consumer market - symbol of the stability that has taken hold in a country once accustomed to defaults and hyperinflation.

But the boom in demand and production, and their byproducts - jobs and investments - are evident far from this distant outpost.

From Paraguay to Chile and Brazil to Peru, a growing middle class armed with cheap credit and new confidence in the future is contributing to the most vigorous economic expansion in decades. The growth in South America is still largely driven by Asia-bound exports of copper, iron ore, tin, meat and soybeans.

But economists now talk of a new dynamic that reflects the stronger foundation of more-mature economies: increasingly affluent consumer societies.

The irony, as laid out in a recent report by the International Monetary Fund, is that history's traditional No. 1 consumer, the United States, is still sputtering from the economic crisis as consumer confidence remains frail. The worldwide recovery is instead driven by emerging economies, with Asia in the lead along with several South American countries, the report said.

"Productivity is going up, investment is going up, the economy is producing more; that is what's leading people to be able to buy more," said Steven Phillips, a senior IMF economist and co-author of the report. "More and more people are able to have a better standard of living, and you see it in more consumption."

The new consumer class includes Ana Karina, a line worker at the modern BGH plant, maker of televisions to cellphones, in Rio Grande, 120 miles from the island's other city, Ushuaia. Karina said she and her family have a newfound buying power that has given them the chance to take vacations and collect the latest technology: a big LCD television, cellphones, a computer.

"Everything is easier now, there are more things within reach," she said, taking a break from producing waterproof cellphones. "I think we are going to have many more years of stability and prosperity."

A quick recovery

Since 2002, about 56 million people across Latin America have risen out of poverty, according to the World Bank, defining the poor as those earning less than $4 a day.

The gap between rich and poor, which had rarely budged even in times of economic growth, began to tighten. With production picking up, unemployment fell to historic levels in some countries, and increasing numbers of workers joined the formal economy, leaving behind unstable jobs lacking regular pay or benefits.

At the same time, governments across the region instituted measures to contain inflation, control spending and encourage investment. So when the American-made financial crisis spread tsunami-like, this region avoided the defaults, devaluations and unemployment that marked the economic shocks of the past.

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