Liquidity is sloshing around international markets, with investors attracted by the higher yields offered by the region's fixed interest assets.

China and other rapidly growing Asian economies are sucking in huge quantities of soya, iron ore and copper. High oil and gas prices are helping hydrocarbons exporters. And for those smaller countries that need to import fuel, higher energy bills are being offset by remittances from migrant workers and - in some cases - the largesse of Venezuela's President Hugo Chávez.

And yet Latin America is in danger of losing - yet again - the opportunity to use such favourable circumstances to modernise its economy, rebuild infrastructure and fully develop its natural resources and human capital. As the region enters a year with presidential elections in nine countries, there is a risk that its politicians will once again fall to the lure of populism.

There are some dangerous signs. Last year, at a time when emerging markets were expanding on average by nearly 6 per cent, Latin American economies expanded by just 4 per cent. The region - with the exception of Chile - is neither saving nor investing enough. Investment rates have still not returned to the levels of 1998. In Brazil, so little is being invested in infrastructure that many roads, bridges and ports are getting worse. Latin America can attract portfolio flows, but it is losing its capacity to attract businesses prepared to bet on its long-term future.

Dysfunctional legal systems, self-interested bureaucrats and, in some countries, the prospect of political chaos are dissuading would-be investors. The flood of short-term money is actually making things worse by overvaluing currencies in some countries.

As politicians craft their programmes for this year's contests they need to consider three things. First, they should develop macroeconomic programmes that make the most of short-term surpluses but prepare for longer-term ups and downs. China's entry into the world economy has given a new dynamism to the world economy but it has not abolished the economic cycle.

Second, they need to do more to restructure their public sectors - not simply to reduce the size of the state, but to increase the quality of the services it delivers. Third, they should seek to forge more sustainable partnerships with international companies.

This may sound like a tall order but Chile, the most polarised and divided country in the region a generation ago, has shown that progress is possible on all fronts. It will be slow and complicated but Latin America's problems are complex and deep-rooted. There are no easy solutions and Latin American leaders should not pretend otherwise.