The last year of investment speculation in the developed world could learn something from their neighbours to the south. Inflation and price fluctuations over the last ten to fifteen years in Latin America has habitually been many times worse than in North America and Europe, often suffering from huge inflows and rapid outflows of liquid investment, drastic changes in commodity prices and an overall economic depression in some of Latin America's largest economies. For the first time since the late 1970s the speculators have not turned only Latin America into a case study for failed economic policies this time around, in fact it is the traditional lending nations that are feeling the brunt of the latest economic soap opera to hit the world financial markets.
The first narrative surrounds oil and petroleum products and their rise in overall prices. While in the 1970s, much of that chaos in gasoline sales were due to OPEC, price fixing and conflicts in oil producing nations, this current oil crisis is symptom of a more complex collection of entities. Last week, OPEC leaders met with officials regarding an increase in production by member nations. What was sharply pointed out however is that the current crisis does not have its roots in OPEC or price fixing, but due to new industrial users of oil, the US auto market, and of course price speculation coming from market experts themselves. This invisible pressure has done nothing but boost the price of oil, this despite no 1970s oil crisis, hurricanes, typhoons or any other tangible threats that would lead to sharp increases in fuel prices.
How can policymakers manage such intangible threats to their economies? A lesson from the past is to maintain a stable oil market worldwide, in other words, deal with the tangible threats first. This requires that countries that produce oil can always have a change in government and require stability, but this needs to come up with investment solutions that do not keep policymakers in those nations under control from abroad, or give reasons for countries like Venezuela, who were at the point of developing a diverse economy and societal institutions in the early 1970s, from becoming a country run by oil barons on the right wing or socialist oligarchs on the left. Countries like Nigeria are often placing oil revenue and politics surrounding those issues before stability, institutional development and human rights, leaving those countries as one resource economies controlled by Petroleum and oligarchic entities. Venezuela in the modern form started its transformation in the 1970s, when it was considered the most significant OPEC nation and taking the position and contributing to the global oil crisis of that period. With the realization of diminishing demands for oil coming with new environmentally friendly technologies at the time, the rest of OPEC reintegrated the oil industry into the world economy in order to maintain their clientele, dropping prices and leaving much of Latin America in severe debt in the process and mired in political turmoil in the long run.
In today's oil crisis, much of the tangible pressures of the past two years have mainly subsided. In the current crisis, record high prices often came with no dark clouds on the horizon, but simply word of mouth passing through enough trading floors to create stress in the market and a drastic rise in prices. With regulatory development in Latin America becoming more effective only in the last few years, speculation and bad press has always given policymakers a difficult task in managing what is actually happening in the market. Balancing the media surrounding a market with what was available became the defining issue of investment in the late 1990s and early part of the new millennium, often not caring if it involved a healthy economy or one in chaos. The 2001 Argentine Peso devaluation was part of the reason for the country's complete and total collapse. With policy advice and spending restrictions from the World Bank and IMF creating tight economic policy and fiscal stability that could only barely be maintained, bad press became a great factor in sparking the flames that started the crisis. While many developed nations suffering with fuel prices are not as fragile as Argentina was in 2001, the effect of intangible threats need to be dealt with through good investment laws and policies that take the fluidity of modern investment into explicit consideration and deal with speculation with transparent responses to investors and the public.
The second point to consider is that all policy fields must be seen in a holistic fashion. With energy policy comes human rights policy, environmental policy, labour policy and economic development. Brazil is seen by many as the next China or India, and much of this has to do with some effective strategies developed by various political parties and sensible policy decisions since the 1990s. While Brazil is an oil exporter, the development of food policy and energy policy has come via the production of biofuels in balance with the price of food production to create one of the most widely used biofuels in the world being produced and used in Brazil as well as maintaining enough crops to keep sugar cane prices low enough to produce sugar and fuel for societal consumption. Much of the oil crisis worldwide is exacerbated by a sudden rise in environmental policies that are so hastily implemented that it is taking staple foods and overvaluing them for the sake of engines that do not yet exist, leaving the poorest 2 billion on the planet with almost nothing to eat. Environmental policy, while committed to with positive intentions, has also created many intangible issues that leave fuel policy with another victim. Often these victims are not those who drive cars and head up industry, but those on the margins of society who live day to day that cannot afford the luxury to be concerned about environmental changes in the artic or buying a hybrid vehicle. In reality, high fuel prices will always spark more environmentally friendly technologies, but coordination of policy and the realization that people matter before autos is essential to avoiding oil crisis, and producing environmental policy that hurts more people than it helps.
The third and final point that must be considered is that other countries who are developing must be allowed to do so, China must be allowed to do so as well. Economic policies have always tried to develop many economies and lift many out of poverty in the process. Like poor environmental policy, any regulations and legislation that places more people into poverty for the sake of intangible goals should be reformed and reconsidered and heavily criticized. Policy which allows for growth in places like China and Brazil should be encouraged with a holistic policy approach, so that the environment and human rights come into the discussion on economic policy. A possible positive result would be Sao Paulo becoming an economic powerhouse, with good policy driving good development, and open debate on challenges facing the populations making for better policy outcomes. The reality is however that until enough dialogue on the next trend focuses itself on Brazil, policymakers and investors will have to react to what might be an issue, as opposed to addressing tangible issues which are the basis for economic achievement for the future. Intangible issues and investment has always been a great problem for many countries, only when it is address as such will new policy and guidelines for investment regulations allow for a sensible, holistic and humanistic social, environmental and economic policy that is strong enough to reject hearsay in the international oil market.
