In which country are people better off economically?

Today’s top five Latin American economies are Venezuela, Colombia, Argentina, Mexico, and Brazil. The current leader, Brazil, has an aggregated GDP of 1.796 trillion dollars while the runner-up, Mexico, has a total GDP of 1.046 trillion dollars, the 71% difference in overall GDP indicates the South American country is a well-established power in the region.

Nevertheless, the aggregated GDP ratio between Brazil and Mexico seems meaningless as the Per Capita GDP ratio is only of 5.4%. The Per Capita GDP is a measure that shows the income share per civilian under equivalent distribution. The calculation is a proxy for average quality of life and raises the question, how true is it that Brazil is Latin America’s top power?

The power of a nation has been traditionally deduced based on its total production of GDP. Assuming a direct relationship between wealth and power is dangerous as it doesn’t recognize how the wealth is distributed within countries, and since the Latin American economy has shifted from the primary sector, then the measure for economic power has to be considered by its civilian’s welfare; GDP is not enough anymore.

A better measure for a countries development, instead of the GDP, is the GINI Index. The World Bank’s indicator measures dispersion of the income among residents; a higher GINI means more inequality while a lower score indicates lower disparity.

GINI’s latest measure was done in 2014, Brazil’s score was of 51.48 while Mexico’s was of 48.21. The North American country shows less inequality than Brazil, based on the fact that the average citizen has nearly the same income.

In the long term, Mexico also provides valuable opportunities that Brazil fails to deliver. Mexico’s real interest rate has remained nearly constant between 0% and 3% since 1995 in what has been recognized by the World Economic Forum as a sound macroeconomic management coupled with the righteous financial administration.

On the other hand, Brazil entered a recessive cycle in 2011 and is now recovering with an abnormal 40.4% interest rate, which reflects the nation’s lack of interest in permitting citizens to develop a larger entrepreneurship sector; it maintains Brazil’s banking political power which the Huffington Post quoted as “more politically powerful than Wall Street in the United States”.

Brazilian dominance as the region’s top player is challenged not by external forces but by internal ones. Corruption has tarnished Brazil’s reputation; Operation Car Wash has unveiled how the country’s most prominent individuals, including presidents, acted dubiously.

An average civilian in Brazil and Mexico has nearly the same income, but the Mexican individual will have better chances to improve his or her social condition as inequality levels are lower in the North American nation. In addition, any credit the Brazilian counterpart takes, it will be 396% more expensive than one taken in Mexico.

Is Brazil a true reference for leadership in the region?

Latin American Post | David Eduardo Rodríguez Acevedo

Copy edited by Susana Cicchetto