Can Latin America's middle class stay afloat?

Author:Fredrick, James
Position:MIDDLE CLASS - Cover story
 
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If you earn at least 410,000 Colombian pesos (U.S. $165) per family member, per month, you are considered middle class. In Mexico, you may be middle class if you have a credit card with a 1,500-peso (U.S. $110) limit. If you can buy a brand new car in Argentina, you're probably middle class.

Regardless of the country-to-country details, it's now widely accepted that Latin America and the Caribbean have a middle class, a definitive sign of progress for the region.

"Never before has the region experienced distributional changes so important as those experienced in the past 10 years," said Marcos Robles, senior research economist at the Inter-American Development Bank's Social Sector.

A concoction of national, regional, and global factors came together to give birth to this group.

But looking ahead, those initial drivers may be gone, at least for a while.

In 2014, all major economies in Latin America grew less than their average in the early 2000s. Some even shrank. With a slew of recent problems in Argentina, Brazil, and Venezuela (just to name a few), will the middle class be lost?

HOW DID WE GET HERE?

While there is plenty of debate over the way to determine the middle class, many economists have accepted an income-based approach. According to the IDB, if you earn between $10 and $50 per day (all figures in adjusted purchasing power parity), you are considered middle class in Latin America. The line was drawn there as it represents the point at which the probability of falling back into poverty is 10 percent.

There is also the "vulnerable" class, those earning $4 to $10 per day, or rather, not poor, but not yet middle class either. Below $4 per day is poor, and above $50 is upper class.

From 2003 to 2013, revealed the latest available data from the IDB, the middle class in Latin America went from 19.9 percent of the population to 30.5 percent. Simultaneously, the poor dropped from 44.7 percent to 29.7 percent of the population.

You can spot the middle class anecdotally, in buy-on-credit superstores like Argentina's Musimundo, in modern housing developments near Volkswagen plants in Mexico, even in Brazil's middle class protests over public transportation price hikes.

The origins of this middle class growth aren't exactly a surprise.

"Poverty reduction was the result of two factors," said Augusto de la Torre, chief economist for Latin America and the Caribbean at the World Bank. "Simple economic growth--that is income growth--and to a significant extent, social policy that became more targeted and focused."

From 2003 to 2013, GDP per capita in Latin America averaged 4.9 percent annual growth. As income rose...

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