By Robert A. Blecker*
Two maquiladoras in Tijuana, Mexico. The low percentage of Mexican value-added in Mexico’s exports is a key reason why the country has not gotten nearly as much employment growth as it hoped for when it joined NAFTA. / Anthony Albright / Flickr / Creative Commons
Officials in the Trump administration are proposing a new way of measuring the U.S.-Mexican trade deficit that, by making the deficit look larger than it currently appears, will likely be spun to support efforts to impose high tariffs or dismantle NAFTA. According to press reports, the President’s senior advisors, including the head of his new trade council, Peter Navarro, are proposing to include only “domestic exports” (exports of U.S.-produced goods) in calculating bilateral trade balances with Mexico and other countries. This would exclude “re-exports” – goods that are imported into the United States from other countries (such as Canada or China) and transshipped into Mexico – which are currently counted in total U.S. exports.
- In spite of its political motivation, the proposed new accounting would render a more accurate measure of U.S. exports. In fact, it would make the U.S. deficit with Mexico look closer to what Mexico reports as its surplus with the U.S. For 2016, the U.S. reports a deficit of $63.2 billion with Mexico, while Mexico reports almost twice as big a surplus of $123.1 billion with the U.S. If the U.S. excluded re-exports, its trade deficit with Mexico for 2016 would be $115.4 billion, which is much closer to the Mexican number.
Nonetheless, this recalculation fails to correct for another bias, which makes the U.S. deficit with Mexico look artificially large. Imports are measured by the total value of the goods when they enter the country, from the immediate country of origin. But in today’s global supply chains only part of the value-added in imported goods comes from any one country. A television, for example, can be assembled in Mexico with components imported from Korea and other East Asian nations. As a result, the reported U.S. imports from Mexico (especially of manufactured goods) greatly exaggerate the Mexican content of those goods. Although data limitations do not permit an exact calculation of the Mexican content of U.S. imports from Mexico, it is likely relatively low. (My own estimates suggest it is on the order of about 30-40 percent for manufactured goods). Indeed, the low percentage of Mexican value-added in Mexico’s exports is a key reason why the country has not gotten nearly as much employment growth as it hoped for when it joined NAFTA.
The Trump Administration’s aggressive rhetoric and action on other issues related to Mexico, including immigration and the wall, suggest a political motivation for the proposal to adopt a new measure of exports, regardless of its merits. But the real problem is not the “correct” number for the U.S.-Mexican trade deficit; it is why NAFTA has not lived up to its promise of supporting high-value added exports and high-wage job creation in both countries. This promise was based on the idea that the United States would export capital and intermediate goods to Mexico for assembly into consumer goods, which would then be exported back to the United States. But especially since China joined the WTO in 2001, Mexico has increasingly become a platform for assembling mostly Asian inputs into goods for export to the United States (and secondarily Canada). Even if “re-exports” are excluded, Mexico remains the second largest export market for the United States (after Canada) – and U.S. exports to Mexico are 65 percent greater than U.S. exports to China. Focusing too much on measuring the U.S.-Mexico trade imbalance only distracts attention from the need to reform NAFTA so as to encourage more of the “links” in global supply chains to be produced in North America generally. If the Trump administration is serious about making the U.S. more competitive vis-à-vis China, it should think about viewing Mexico as a partner instead of as an enemy. In the larger context of Trump’s many objectionable policies on migration and in other areas, a long-overdue correction of U.S. export statistics is not worth getting upset over. The real issue is whether Trump’s trade policies – with Mexico and beyond – will bring the promised gains to U.S. workers, or will further enrich corporate billionaires and Wall Street tycoons.
February 23, 2017
* Robert A. Blecker is a Professor of Economics at American University.
Posted by clalsstaff on February 23, 2017
By Eric Hershberg and Fulton Armstrong
Brazilian President Michel Temer surrounded by members of his party in mid-2016. His government will continue to face questions of legitimacy in 2017. / Valter Campanato / Agência Brasil / Wikimedia / Creative Commons
The year 2016 laid down a series of challenges for Latin America in the new year – not the least of which will be adapting to a radically different administration in Washington. Last year saw some important achievements, including an elusive peace agreement in Colombia ending the region’s oldest insurgency. Several countries shifted politically, eroding the “pink tide” that affected much of the region over the past decade or so, but the durability and legitimacy of the ensuing administrations will hinge on their capacity to achieve policy successes that improve the well-being of the citizenry. The legitimacy of Brazil’s change of government remains highly contested. Except in Venezuela, where President Maduro clung to power by an ever-fraying thread, the left-leaning ALBA countries remained largely stable, but the hollowing out of democratic institutions in those settings is a cause for legitimate concern. Across Latin America and the Caribbean, internal challenges, uncertainties in the world economy, and potentially large shifts in U.S. policy make straight-line predictions for 2017 risky.
- Latin America’s two largest countries are in a tailspin. The full impact of Brazil’s political and economic crises has yet to be fully felt in and outside the country. President Dilma’s impeachment and continuing revelations of corruption among the new ruling party and its allies have left the continent’s biggest country badly damaged, with profound implications that extend well beyond its borders. Mexican President Peña Nieto saw his authority steadily diminish throughout the course of the past year, unable to deal with (and by some accounts complicit in) the most fundamental issues of violence, such as the disappearance of 43 students in 2014. The reform agenda he promised has fizzled, and looking ahead he faces a long period as a lame duck – elections are not scheduled until mid-2018.
- The “Northern Triangle” of Central America lurches from crisis to crisis. As violence and crime tears his country apart, Honduran President Hernández has devoted his energies to legalizing his efforts to gain a second term as president. Guatemala’s successful experiment channeling international expertise into strengthening its judicial system’s ability to investigate and prosecute corrupt officials is threatened by a weakening of political resolve to make it work, as elites push back while civil society has lost the momentum that enabled it to bring down the government of President Pérez Molina in 2015. El Salvador, which has witnessed modest strides forward in dealing with its profound corruption problems, remains wracked with violence, plagued by economic stagnation, and bereft of decisive leadership.
- Venezuela stands alone in the depth of its regime-threatening crisis, from which the path back to stability and prosperity is neither apparent nor likely. The election of right-leaning governments in Argentina (in late 2015) and Peru (in mid-2016) – with Presidents Macri and Kuczynski – has given rise to expectations of reforms and prosperity, but it’s unclear whether their policies will deliver the sort of change people sought. Bolivian President Morales, Ecuadoran President Correa, and Nicaraguan President Ortega have satisfied some important popular needs, but they have arrayed the levers of power to thwart opposition challenges and weakened democratic institutional mechanisms.
- As Cuban President Raúl Castro begins his final year in office next month, the credibility of his government and his successors – who still remain largely in the shadows – will depend in part on whether the party’s hesitant, partial economic reforms manage to overcome persistent stagnation and dissuade the country’s most promising professionals from leaving the island. Haiti’s President-elect Jovenel Moise will take office on February 7 after winning a convincing 55 percent of the vote, but there’s no indication he will be any different from his ineffective predecessors.
However voluble the region’s internal challenges – and how uncertain external demand for Latin American commodities and the interest rates applied to Latin American debt – the policies of incoming U.S. President Donald Trump introduce the greatest unknown variables into any scenarios for 2017. In the last couple years, President Obama began fulfilling his promise at the 2009 Summit of the Americas in Trinidad and Tobago to “be there as a friend and partner” and seek “engagement … that is based on mutual respect and equality.” His opening to Cuba was an eloquent expression of the U.S. disposition to update its policies toward the whole region, even while it was not always reflected in its approach to political dynamics in specific Latin American countries.
Trump’s rhetoric, in contrast, has already undermined efforts to rebuild the image of the United States and convince Latin Americans of the sincerity of Washington’s desire for partnership. His rejection of the Trans-Pacific Partnership – more categorical than losing candidate Hillary Clinton’s cautious words of skepticism about the accord – has already closed one possible path toward deepened ties with some of the region’s leading, market-oriented economies. His threat to deport millions of undocumented migrants back to Mexico and Central America, where there is undoubtedly no capacity to handle a large number of returnees, has struck fear in the hearts of vulnerable communities and governments. The region has survived previous periods of U.S. neglect and aggression in the past, and its strengthened ties with Asia and Europe will help cushion any impacts of shifts in U.S. engagement. But the now-threatened vision of cooperation has arguably helped drive change of benefit to all. Insofar as Washington changes gears and Latin Americans throw up their hands in dismay, the region will be thrust into the dilemma of trying to adjust yet again or to set off on its own course as ALBA and others have long espoused.
January 4, 2017
Posted by clalsstaff on January 4, 2017
By Andrés Serbin*
Chinese President Xi Jinping received a medal of honor from the Peruvian Congress during his tour of South America last month, which included the Asian-Pacific Economic Cooperation summit in Lima. / Ministerio de Relaciones Exteriores, Peru / Flickr / Creative Commons
In Latin America and elsewhere, the world is undergoing tectonic movements that indicate the birth of a new world order with new rules of play. For much of the past decade, dynamism in world commerce and finance has been shifting from the Atlantic basin to the Pacific. While the international economy has shown fragility and the developed economies – particularly the European Union and the United States – have shown slow growth since the crisis of 2008, China and the emerging economies of the Asian-Pacific region have experienced sustained growth. China, now the second biggest economy in the world, has been the driver of that growth and, according to most projections, is poised to overtake the United States as the biggest. After several centuries in which power has been concentrated in the West, the emergence of new powers in a multi-polar world will naturally bring about changes in the norms and rules governing the international agenda.
In Latin America and other regions, there is growing awareness of this process – with China and its own version of globalization at its center. The region has witnessed the paralysis of the Transatlantic Trade and Investment Partnership (TTIP) between the EU and the United States as well as U.S. President-elect Donald Trump’s declaration that he will withdraw the United States from the Trans-Pacific Partnership (TPP) as part of a broader anti-globalization policy. Trump’s announcement drew two different reactions from participants from TPP country leaders at the Asian-Pacific Economic Cooperation summit in Lima late last month. One was the express decision to proceed with TPP even without the United States, and the other was a clear receptivity to Chinese President Xi Jinping’s invitation that they join regional economic groups that he is pushing – the Regional Comprehensive Economic Partnership (RCEP) and the Free Trade Area of the Asia-Pacific (FTAAP).
- Both agreements explicitly exclude the United States and abandon norms customarily pushed in free trade by the West. They emphasize reducing tariffs and give no consideration to labor and environmental regulations and non-tariff measures.
- They complement China’s “one belt, one road” initiative, a modern-day revitalization of the Silk Road creating trade links between China’s western regions with Russia, Central Asia, and eventually to Europe, developing land and maritime routes along the way. The Shanghai Cooperation Organization (SCO) – an economic and security pact linking China, Russia, four Central Asian nations, and now welcoming India and Pakistan – is explicitly linked to RCEP.
Washington’s pending rejection of TPP eliminates a central part of President Obama’s “pivot” strategy to counter China’s rapidly expanding influence in Southeast Asia and the South China Sea, but it also has implications for Latin America and the Caribbean as China moves in rapidly to fill the void left by U.S. withdrawal. While President-elect Trump has pledged to “renegotiate” NAFTA – which he called “probably the worst trade deal ever agreed to in the history of the world” – China last month presented to Latin America a detailed document proposing a new era in relations with “comprehensive cooperation” in all areas and reaffirming a “strategic association” with the region. In sharp contrast with the new U.S. President’s views of Latin America, Beijing calls Latin America and the Caribbean “a land full of vitality and hope,” praises the region’s “major role in safeguarding world peace and development,” and calls it “a rising force in the global landscape.” While some analysts suggest that globalization is slowing if not ending, these developments more strongly indicate that it is rather taking on a new form within a new world order that clashes with the visions and values of the West. We appear to be transitioning into a world that is genuinely multi-polar with globalization under new rules.
December 13, 2016
* Andrés Serbin is the president of the Coordinadora Regional de Investigaciones Económicas y Sociales (CRIES), a Latin American think tank. This article is adapted from an essay in Perfil, based in Buenos Aires.
Posted by clalsstaff on December 13, 2016
By Raymundo Miguel Campos Vázquez, Luis-Felipe López-Calva, and Nora Lustig*
A student walks around Preparatoria Vasconcelos Tecate. / Gabriel Flores Romero / Flickr / Creative Commons
Mexico’s experience with free trade has challenged one of the tenets of faith economists know well from reading early in their careers David Ricardo’s Principles of Political Economy and Taxation: that “the pursuit of individual advantage is admirably connected with the universal good of the whole” and that “[trade] distributes labor most effectively and most economically.” Under this principle, “wine shall be made in France and Portugal; corn shall be grown in America and Poland; and hardware and other goods shall be manufactured in England.” Mexico reminds us that while these benefits exist in the abstract, there are trade-offs to be faced—that there are, potentially, social and individual costs induced by trade liberalization.
In a recently published paper entitled “Endogenous Skill Acquisition and Export Manufacturing in Mexico,” MIT economics professor David Atkin shows the ways in which individual people experience trade and how it affects their decision-making – sometimes in ways that may not necessarily be socially desirable. It analyzes a time period (1986-2000) during which Mexico underwent major economic transformations, including a rapid process of trade liberalization after 1989 and the introduction of the North American Free Trade Agreement (NAFTA) in 1994. Analyzing data for more than 2,300 municipalities in the country, the paper tells us that young Mexicans at the time faced a very basic decision: to stay in school and continue studying or to drop out and look for a job (among the many being created in the export-oriented manufacturing sector), most of which did not require more than a high school education. Atkin found that, on average, for every 25 new jobs created in the manufacturing sector, one student would drop out after 9th grade. (The World Development Report 2008 on Agriculture for Development had raised the question about “missing” individuals in this age group, but in relation to migration.)
- While trade brought positive effects including a higher demand for low skilled workers and an eventual increase in their wages – consistent with David Ricardo’s basic notion – Atkin concluded that in Mexico it had the socially undesirable effect of preventing, or slowing down, the accumulation of human capital. The reduction in human capital investment is a trade-off which can have negative effects on the economy as a whole.
- Factors other than free trade might explain this effect. First, young students may drop out if the returns to schooling are not high enough to compensate for the additional investment. Second, a lack of access to credit and insurance for relatively poorer households might make it impossible for aspiring students to finance their investment and obtain higher returns by continuing to tertiary education or to cope with shocks and avoid abandoning school. Finally, the result could be driven by a lack of availability of information about actual returns to investment in education, which could lead to myopic decision-making.
The movement of capital toward locations with lower labor costs is an expected, and intended, result of an agreement such as NAFTA, pursuing higher export competitiveness at the regional level. David Ricardo would have said that TVs and automobiles shall be made in Mexico, while software shall be made in Silicon Valley. What completes the story, however, is that because of distortions like the ones mentioned above – low educational quality, under-developed credit markets, or weak information that skews decision-making – free trade might lead to socially undesirable consequences. And it did in the case of Mexico, as Atkin convincingly shows in his paper. It seems that when Ricardo gets to the tropics, the world gets more complex.
November 7, 2016
* Raymundo Miguel Campos Vázquez teaches at the Centro de Estudios Económicos at el Colegio de México, and is currently conducting research at the University of California, Berkeley. Luis-Felipe López-Calva is Lead Economist and Co-Director of the World Development Report 2017 on Governance and the Law. Nora Lustig is Professor of Latin American Economics at Tulane University.
Posted by clalsstaff on November 7, 2016
By Stephen Baranyi*
Mexican President Enrique Peña Nieto and Canadian Prime Minister Justin Trudeau during the “Tres Amigos Summit” in Ottawa, June 2016. / Presidencia de la República Mexicana / Flickr / Creative Commons
Canadian Prime Minster Justin Trudeau and his cabinet ministers’ statements following their election in October 2015 that “Canada is back” reflect a global strategy that is likely to give a boost to Canada-Latin America relations. Canada never “left” the Americas during the decade of Conservative governments led by Prime Minister Harper, but the new administration is patching up its predecessors’ mixed record. Building on the Americas Strategy launched in 2007, Ottawa signed new bilateral free trade agreements with Colombia, Peru and others; broadened its engagement in regional security affairs; and greatly increased its whole-of-government engagement in Haiti. Canada played a major role at the Summit of the Americas in Panama (April 2015) and hosted the Pan American Games (July 2015). Yet the revelation of Canada’s espionage in Brazil, visa restrictions on Mexicans, the poor reputation of some Canadian mining firms in the region, and its inability to reach a trade agreement with the Caribbean Community fed a growing desencanto in Canada’s relations with the region.
Through mandate letters issued to ministers in late 2015, the Trudeau government made clear that the Americas would remain an important priority, despite renewed emphasis on Asia and Africa, and that inclusive growth, the responsible governance of Canadian extractive activities abroad, and women’s and indigenous peoples’ rights would get emphasis in the region. In June, Canada hosted the “Tres Amigos Summit” with NAFTA partners United States and Mexico. Ottawa also announced that by December, Mexican citizens would no longer need visas to enter Canada, removing a big irritant in Canada-Mexico relations. The government reaffirmed its partnership with Colombia by indicating its desire to make bilateral free trade more inclusive and announcing projects to support the implementation of peace accords.
- Ottawa has opportunities for deeper involvement in these countries. In Mexico, Canadian interests will be served through a better balance between pursuing economic opportunities in sectors like petroleum and supporting Mexicans struggling to strengthen rule of law in a system compromised by corruption. Colombia also requires a sophisticated whole-of-Canada engagement strategy, particularly since the failure of its referendum on the peace accords on Sunday. Ottawa has signaled interest in continuing to support the rule of law and broader development in Haiti, but Trudeau’s ability to justify large expenditures there will depend on the completion of legitimate elections by February 2017.
Ottawa’s appointment of a new Ambassador to the Organization of American States (OAS) and commitment to revitalizing it as “the premier multilateral organization of the Americas” points to broader engagement on a regional level. The Trudeau administration could join the Latin American and Caribbean trend on drug policy by decriminalizing the sale of marijuana at home and supporting reforms to OAS and UN counterdrug programs. Assisting the implementation of the UN Small Arms Treaty, which Ottawa is poised to ratify, could also contribute to rule of law and security in the Americas. Canada will also find many partners (from Chile to Costa Rica) to promote gender equality. With regard to First Nations, Ottawa may be tempted to focus on funding new aid projects; yet Canada’s credibility will remain suspect until it ratifies the American Convention on Human Rights and ensures that all Canadian mining firms respect the rights of indigenous communities to free and prior informed consent in large-scale extractive activities. The Trudeau government will probably monitor the multi-dimensional crisis in Venezuela, the situation in Brazil, and other challenges in the region – over which it probably lacks the leverage to make a significant difference but can lend moral authority to solutions. Given its clear commitment to a global, rather than regional, strategy, the current administration is wise to carefully select entry points on which its thematic priorities align with opportunities in particular countries.
October 5, 2016
* Stephen Baranyi is an Associate Professor at the University of Ottawa’s School of International Development and Global Studies. He also chairs the Latin America and Caribbean Group (LACG) of the Canadian International Council. The author acknowledges his LACG colleagues’ input into this blog, while taking responsibility for its limitations.
Posted by clalsstaff on October 5, 2016
By Eric Hershberg
“Projeto Contrastes.” Photo Credit: Gabriela Sakamoto / Flickr / Creative Commons
The significant decline in poverty rates and income inequality in Latin America over the past two decades – driven by a combination of sustained economic growth and intelligently designed social policies – may slow or even be reversed as economic conditions deteriorate across much of the region. Poverty had begun to drop in most countries even before the commodity boom accelerated growth rates in South America beginning around 2003. The “Washington Consensus” policies of the 1990s impacted wage income and employment negatively, but other factors diminished their impact on poverty. By overcoming profound macro-economic instability, which among other things produced hyperinflation that devastated disadvantaged sectors of the population, the economic adjustments of that period were not entirely regressive. Moreover, a concurrent shift toward targeted social programs – which redirected subsidies away from less vulnerable segments of the population in order to protect the poorest of the poor. By 2002, the number of people living on less than $1.90 a day had declined 4.6 per cent from where it had been at the beginning of the 1990s, according to the World Bank, while the number living on less than $3.10 stayed flat and actually rose (from 135.6 million to 138.1 million). Performance varied across countries. By 2012, after a strong decade of growth and a wave of progressive governments, the progress was much more impressive, with poverty dropping to 33.7 million ($1.90/day) and 72.2 million ($3.10/day).
Inequality declined also – a different challenge in the region that Kelly Hoffman and Miguel Centeno aptly labeled the “lopsided continent.” Measured by GINI coefficients, income inequality in Latin America, which exceeded that of any other world region at the beginning of the century, grew less pronounced under governments of various ideological proclivities. A substantial body of research shows that this was a product of two factors.
- Investments in primary and secondary education, which accelerated during the neo-liberal years, meant lower wage premiums for those with more than basic skills: near universal attendance in secondary school reduced the significance of gaps between workers who had secondary education and those who had little schooling.
- Innovative social policies – particularly conditional cash transfers – meant that the lower rungs of the income ladder received meaningful transfers from the state, enabling them to narrow the income gaps vis-à-vis less disadvantaged sectors. Less frequently acknowledged was the positive impact of reforms on minimum wage policies and the creation or expansion of non-contributory pensions, both of which were pushed aggressively by several governments associated with the “Left Turns.” Non-contributory pensions were especially important since the most vulnerable of Latin American aged populations, having spent their working years toiling in the informal sector, had previously lacked any sort of retirement pension. (Read further analysis of pension reform.)
The region’s slowdown in economic growth and the pressure on public finance brought about by the end of the commodity boom – and the infusion of cash into state coffers that it afforded – raise questions about the sustainability of these advances. The benefits of investments in education will endure for some time. Even if education budgets decline, the costs in terms of lower educational achievement would take years to become evident, and it is not at all certain that the funding will decline. However, the social programs are much more vulnerable, as are the ambitious efforts to increase minimum wages and labor protections more broadly. Should the economic contraction underway in some countries and on the horizon in others generate an increase in informality, the labor market achievements of recent years could be quickly eroded. This would impact inequality, and it might soon exacerbate poverty as well.
June 3, 2016
Posted by clalsstaff on June 3, 2016
By Antoni Estevadeordal and Joaquim Tres*
Source: IDB (Full-sized images at bottom of page)
Latin American and Caribbean countries were major players in global trade liberalization in the 1990s but have since been held back by complex rules, infrastructural obstacles, and the poor flow of information. The successful conclusion in 1994 of the Uruguay Round of multilateral trade negotiations and the establishment of the World Trade Organization (WTO) fueled growth and optimism in the region, but the slow progress of the Doha Round drove the region into the silent tide of regional trade agreements (RTAs), which now govern about half of world trade. Latin American and Caribbean countries have concluded some 70 RTAs – a far cry from the handful of sub-regional customs unions and free trade areas in place in 1994. As a result, tariffs applied by Latin American countries have dropped from an average of 40 percent to 10 percent during this period.
Despite these policy advances, Latin America and the Caribbean’s participation in international trade is still limited. Whereas the region and the developing nations of Asia had a similar share of world trade in 1962 (around 6 percent), Latin America’s global trade share has remained relatively unchanged – and that of Developing Asia has grown to nearly three times its previous size. Latin America registers lower levels of intra-regional trade – 18 percent – compared to 37% in Developing Asia and 61% in the European Union. Our research indicates that Latin America and the Caribbean could close this gap through a series of measures:
- Harmonizing the different rules of origin in the RTAs and the wide array of sanitary, phytosanitary, and technical standards that qualify market access.
- Improving infrastructure and reducing inefficiencies at border crossings to reduce transportation and logistics costs, which amount to three times more than existing tariffs.
- Harnessing the power of information and communications technology to reduce costs through one-stop shops and process automatization, such as the trade single windows being introduced in several countries in the region. The cost of information about consumer preferences, market demand, and foreign regulations is the first barrier that potential exporters face.
- Simplifying and reducing administrative burdens through expedited and secure customs and other trade facilitation measures. Some experts estimate that, worldwide, some 75 percent of delays are due to inefficient processes (compared to 25 percent due to inadequate infrastructure).
The main lesson for Latin America and the Caribbean is that trade agreements are a necessary – but not sufficient – condition to achieve economic development potential. Increasing companies’ participation in international value chains is key to unleashing trade as an engine for economic growth and poverty reduction. Trade-driven growth in the region, much of it from South American commodities, enabled a reduction of poverty from 22 percent in 2002 to 12 percent by creating new employment opportunities and the fiscal capacity to fund poverty reduction initiatives such as conditional cash transfers (Mexico’s Programa Oportunidades, for example). By our calculation, trade facilitation measures such as customs and border simplifications can increase Latin American and Caribbean exports by as much as 15 percent, translating into a 5 percent increase in export-supported jobs that pay almost 20 percent more than jobs at non-exporting firms. It is within policymakers’ grasp to create the enabling environment for firms to export, especially for the small and medium-sized enterprises that may represent the next generation of exporters.
May 9, 2016
*Antoni Estevadeordal and Joaquim Tres are, respectively, the manager and principal specialist of the Integration and Trade Sector of the Inter-American Development Bank. Click here to access the IDB’s new course on trade agreements, and here and here for related studies.
Posted by clalsstaff on May 9, 2016
By An Observer*
Photo Credit: La Moncloa Gobierno de España and Heraldry (Modified) / Flickr & Wikimedia / Creative Commons
Spain’s political crisis and problems facing the European Union have undermined Madrid’s ability to pursue interests in Latin America at a time of new opportunities. Amidst countless months of lameduck government and the failure of either the Partido Popular (PP) or the Partido Socialista (PSOE) to form a government, the country is also tied in knots over corruption scandals, including some touching a Cabinet member and the royal family, and Cataluña’s persistent challenges to central authority. Even before the current mess, Prime Minister Rajoy had shown only modest interest in Latin America, and King Felipe hadn’t yet demonstrated the mettle of his father, who once famously told Venezuelan President Chávez to shut up at an Ibero-American Summit. Adding to Spain’s distractions are a series of EU challenges, ranging from refugee crises to terrorism and the Mediterranean countries’ debt overhang. Spanish elites, who remain committed to the EU vision, are seized with concerns about Brexit, the UK’s flirtation with withdrawal, and perplexed by the absence of a renewed integration project.
Madrid’s declining role coincides with changes in Latin America that would normally grab its attention. President Obama and Raúl Castro’s historic normalization of diplomatic relations has opened the door to at least one major U.S. hotel firm signing contracts to refurbish and manage several Cuban hotels – an industry in which Spain previously had extraordinary advantages. Having played “good cop” with Cuba for many years, compared to Washington’s “bad cop,” Madrid’s future role on the island is at most uncertain. The election of market-friendly President Macri in Argentina, where the previous government nationalized a Spanish energy company and adopted other policies causing bilateral estrangement, also represents an opportunity for Spain. The near-completion of peace talks between the Colombian government and guerrillas should be the crowning jewel of a foreign policy in which Spain made a strong political investment early on, but Madrid has receded to the role of bit player. At a time that Latin Americans continue to espouse support for CELAC and other regional organizations that exclude Spain (and the United States), Spain-sponsored Cumbres Iberoamericanas since 1991 have – even more than the U.S.-sponsored Summit of the Americas – lacked dynamism and produced little as the beacon of the Spanish transition was dying down
By turning inward, Spain risks losing what remains of its special cachet as Latin America’s link to Europe and as a country that made a successful transition to democracy with inclusion, human rights, vibrant media, and increasing transparency. Its political capital in the region is running low, and budgetary constraints have diminished its aid budgets (from 0.5 percent of GDP to 0.13 percent). But opportunities remain. Big Spanish companies – Telefónica, Banco Santander, BBVA, Repsol, and others – and numerous mid-sized firms have shown interest in Latin America. Cuba’s reluctance to embrace U.S. ties too tightly and too fast gives Spain important space to play a role if it wants. Moreover, Spain’s diplomatic skills, critical for Central America’s peace processes and elsewhere, could still be a positive force in that subregion. If it weren’t for former Spanish Prime Ministers’ contradictory roles in Venezuela, where U.S. baggage undermines Washington’s approach to political, economic, and security problems, Spain could be active there too. But the Prime Minister and his cabinet have not given the Foreign Ministry the green light to get more deeply involved. It’s not too late for Spain to turn things around and get back into the game in Latin America. For that to happen Spain needs more consistent governance.
April 18, 2016
* The writer is long-time non-academic observer of Spanish foreign policy in Latin America.
Posted by clalsstaff on April 18, 2016
By Fulton Armstrong
Coming soon to Nicaragua? Photo Credit: tryangulation / Flickr / Creative Commons
The Nicaraguan government and Chinese investment group leading the Nicaragua Grand Canal project continue to claim enthusiasm for their dream, but enough fundamental problems remain unresolved to suggest that prospects for its eventual construction are dimming – and the principals are maneuvering to avoid picking up the tab for the expenditures made so far. In a year-end statement last December, President Ortega’s office said the canal project would be one of his government’s top 25 priorities this year and emphasized its benefits to the Nicaraguan people. Hong Kong-based HKND Group had announced in November that it was “fine-tuning” the canal design to address problems raised in an environmental impact study, which would delay the beginning of major excavations and lock-building until the end of 2016. Company officials have since said, however, that construction of a fuel terminal and wharf on the Pacific coast –necessary to bring in the massive equipment the project requires – could start as early as this August. The company still claims that it will complete the canal in 2020 – a prediction that few, if any, outside experts see as feasible.
The project faces massive obstacles, with no solutions in sight.
- The estimated US$50 billion in financing is nowhere to be seen. Chinese investor Wang Jing, who has already spent US$500 million of his own money on the project, lost some 85 percent of his US$10 billion personal fortune in last year’s Chinese stock market correction. (Bloomberg named him the worst performing billionaire of 2015.) Observers believe his losses as well as the problematic environmental impact study have cooled his and other private investors’ support. An initial public offering of shares has been postponed indefinitely.
- Project managers have yet to demonstrate the need for the canal and propose solutions to significant engineering challenges, such the need for construction able to withstand earthquakes made likely because of seismic faults along the route. HKND says the canal will handle 3,500 cargo ships a year, including ones bigger than those transiting the Panama Canal, but industry experts say there’s no demand for more than will be accommodated by the expansion of the existing canal – and that the United States has no ports capable of receiving the larger vessels. Global warming, moreover, could soon open a faster and cheaper route north of Canada.
- Public protests have diminished during the hiatus in canal-related news and activities, but opponents remain strident and are gaining international support. Detractors’ resolve to fight has been strengthened by the environmental report, by a credible UK firm, determining that the project will “have significant environmental and social impacts,” including dislocation of at least 30,000 Nicaraguans. Indigenous and Afro-Nicaraguan groups on the Atlantic Coast are upset about disruptions to traditional territories, including cemeteries and holy places. Amnesty International has condemned the treatment of affected persons as “outrageous” and “reckless.”
The “biggest earth-moving project in history” is still looking like one of the biggest boondoggles in history – yet another in a long series of chimera canals in Nicaragua since early last century. The government says that popular support for the project remains about 81 percent, but a survey by Cid Gallup, published in the Nicaraguan newspaper Confidencial in January, showed that 34 percent of 1,000-plus respondents consider the canal to be “pure propaganda.” One quarter believe technical studies have been inadequate and that funding will not materialize. Those sentiments could be reversed somewhat by the appearance of massive excavation equipment and creation of related construction jobs, but support will still be tempered by concerns about persons whose lives are disrupted by the project – and by perennial and profound suspicions that corruption will take the lion’s share of benefits. Some opposition leaders believe HKND’s big push to appear optimistic is to build a case for collapse of the project to be Nicaragua’s fault, so that the company can demand that Managua repay the $500 million that Wang has reportedly spent. The lack of transparency surrounding the project only fuels such speculation.
April 4, 2016
Posted by clalsstaff on April 4, 2016