Economic Development and Venture Capital In Latin America

For long South Florida has been considered the U.S. capital of Latin America. The significant  inflow of Latin American expatriates first from Castro’s Cuba during the 60”and 70’ and later from other troubled Latin American countries (Colombians fleeing from the guerrillas, Argentineans fleeing from the economic crisis, Venezuelans fleeing Chavez, etc) have created singular social landscape. Contrasting with other states where Latino immigrants populate the lower paid job bracket,   Florida’s Latin population has a significant professional and entrepreneurial community, made up by second generation successful Cubans and first generation mid-upper class immigrants with deeply rooted business and familiar connections in the continent’s power networks.

Given this wealth of relationships Miami seems to be ideally located to play a pivotal role as a meeting point where big American Venture Capital meets Latin American entrepreneurs. This hasn’t happened yet.  The root cause of this is two pronged: At the hemispheric level, entrepreneurship in Latin America faces significant challenges regarding their human capital utilization, the capital allocation processes, the social cost of failure and the economies of scale required for the Venture Capital model to work. At the local level Miami haven’t been able to provide the “ecosystem” required to foster economic development trough innovative enterprise.

 

Macroeconomics, Inflation and Microfinance

The current global inflationary spiral has prompted the IMF chief to alert about the consequences it has for the poorest of the population. In his latest statements, Mr. Strauss-Kahn follows classical western economics thought: the poorest fifth of the world population make wages in the local currency, and in inflationary environments their wages are adjusted at a slower pace than price rises, eroding their purchase power over time. The higher the inflation rate, the slower is the wage adjustment. On top of that, the classical economic thinking goes, the poorest segments of the population don’t have the inflationary hedges richer people have like moving their assets to gold or other less inflation-sensible assets class.

This line of thinking has two central assumptions: First, there is an asset the owner cannot dispose immediately (e.g. “frozen” savings in the bank, wages to be paid at the end of the week and/or other accounts receivables); second the asset is denominated in the national currency being devaluated due to inflation.

This set of ideas are extremely compelling in the developed economies where most of the population is wage-earning employees (unemployment rates have been around the 8% average the last 50 years) and poverty is a marginal concern (“endemic” poverty in the G7 countries is less than 1% of the population, mainly as a consequences of other concomitant factors –e.g. mental health, physical handicap, substance abuse )