Latin America’s Awkward Middle Class Angst
As Latin American stock markets mostly ride a wave of consumer optimism, the World Bank completed a comprehensive survey of middle class dynamics the past decade which praises progress but raises questions about definitions and sustainability. It combines regional household income and standard poverty figures within a broad construct of economic security to arrive at an additional class of near-poor that teeter on the per-capita $10 dollar/day, although often counted among the 30 percent of the continent’s population or over 150 million now in the middle tier. This vulnerability persists despite higher GDP growth and lower inequality trends; over the past 15 years in 18 countries 40 percent of citizens showed upward mobility. The tendency was greater in Brazil and Chile than in Paraguay or Guatemala and came in Argentina and Uruguay as the at risk segment attained middle-class status. Graduation was likelier with college education, urban domicile and formal sector employment, which in turn fostered public social spending. However intergenerational advance remains limited as the family pattern may repeat particularly in places like Ecuador, Panama, and Peru far from establishing equality of opportunity by law and practice. School “sorting” confined to the privileged and rich is pervasive, although lower rungs are entering elite universities with outreach programs and better nutrition and physical infrastructure to support study. Middle income jobs are found in both manufacturing and services and the public and private sector, although Honduras and Mexico emphasize an official track. Average family size fell by one to three since the early 1990s and 75 percent of women either have or are actively seeking work. They uphold values including trust in political institutions and parties and spurn violence as path to government change. With “re-democratization” the social contract has shifted as well with more functions demanded of the state even as the average tax revenue base was just 20 percent of GDP in 2010. Pension and social security benefits, electricity and roads, and physical protection are now among class expectations.
The review urges expansion and modernization of safety nets and training programs in preparation for the next phase of consumer development with a “less friendly” external environment than during the commodity boom period of recent years. With that positive backdrop Latin external bond issuance through Q3 was a record $120 billion according to data source Dealogic. The largest local markets have more than doubled since 1995 by BIS calculation, and mainly state company placement in the US reached $70 billion. In number one domestic market Brazil corporate activity was $40 billion through September. Dollar bond yields on the regional component of the CEMBI were 4.3 percent in November, a pickup of 150 basis points over global high-grade instruments. Tax incentives will soon be available for foreign buyers of Brazilian infrastructure and mortgage bonds as regulators try to lift the asset class.
