Latin American should dare to change
Latin America is faced today with a combination of internal and external challenges which require strategic thinking and coordinated action. The changes in the global environment push our countries to seek alternatives to invigorate their growth, transform their productive structure, diversify their markets and stimulate the domestic demand, without leaving the social challenges unattended. The region can convert this situation into opportunity, if it takes advantage of the moment to carry out the pending reforms, deepen the regional integration and tighten alliances with partners in the Atlantic and the Pacific.
A lot has been written about the effects that the new administration in the United States will have on Latin America. For the moment, what we have seen is an increase in uncertainty; as the international situation is already uncertain and volatile. With regards to the economy, the world has not yet recovered from the 2008-2009 crisis. This decade’s levels of growth are the lowest they have been in the past seventy years. World trade is stagnant and has grown below the Gross Domestic Product (GDP) of the past five years, ploughing back to a historical trend and raising the question of what will be the best motor for development in the future. International influxes of Foreign Direct Investment (FDI) fell between 10 percent and 15 percent in 2016 and it is difficult to imagine them recovering in the short term.
A lot of Latin American countries are very vulnerable to possible swerves in the United States trade policies: more than 40 percent of exports from all Central American countries and the Dominican Republic are destined for the United States
A lot of Latin American countries are very vulnerable to possible swerves in the United States trade policies: more than 40 percent of exports from all Central American countries and the Dominican Republic are destined for the United States. More than 80 percent of Mexico’s exports go there. Central American countries are also dependent on external shipments which represent 18 percent of the GDP of Honduras, 16.6 percent of the GDP of El Salvador and 10.3 percent of the GDP of Guatemala (compared to just 2.3 percent of Mexico’s).
The threat of protectionism in the United States joins together with the impact of Brexit and the China’s continuous transition towards the most modest ranges of growth, with an economic model most focused on its internal market. The prices of commodities saw a slight improvement this year, but a far shout off their pre-crisis levels.
This deterioration of the external conditions happened just when Latin America was coming out of two years of economic contraction. It is envisaged that in 2017 the region will reach a total growth of around 1.1 percent thanks to the recovery of large economies such as Brazil and Argentina, although there are still question marks over the sustainability of Brazil’s recovery.
The levels of debt in Latin America are around 38 percent of the GDP, which raises worries about the cost of exterior funding due to the strengthening of the dollar and the increase in interest taxes by the Federal Reserve of the United States. The situation could get worse in light of an increase in fiscal deficit in the United States as a result of cuts of anticipated taxes, deregulation and the expansion of investment in public infrastructure which the new administration has promised.
Further away from the economy, there are also worries about the values that underlie these changes on the international stage. The return of nationalist and xenophobic rhetoric, with signs of fragmentation and polarization in different parts of the West, undermine the principles that the multilateral system upholds and that Latin America defends with one voice.
The return of nationalist and xenophobic rhetoric, with signs of fragmentation and polarization in different parts of the West, undermine the principles that the multilateral system upholds and that Latin America defends with one voice
Millions of Latin Americans can see themselves being directly affected by these excluding attitudes. More than 17 percent of the US population is considered Hispanic, with a large percentage of migrants, including around 8 million illegal migrants. Four of the five main origins of illegal immigration to the United States are Latin American countries (Mexico, Guatemala, El Salvador and Honduras).
It is noticeable that Latin America would be particularly vulnerable to the effects of the United States’ exterior policies. This does not mean to say, however, that there are no options or tools. Far from coming to a halt, the region should make the most of this opportunity to carry out the reforms that it proposed in the past and to explore new alliances.
In the domestic sphere, we should elevate the competitiveness of our economies; betting on the digital society, on knowledge, research, science and technology, diversifying products and markets, investing in infrastructure and logistics and improving the quality of our education systems. We need a revolution in productivity that allows us to transform the way our companies work; making them more innovative and linked to value chains. The great advances that Latin America has been taking, in terms of digitalization of material, should help us to tie the small and medium companies to the global economy through technological platforms; this will contribute to the creation of employment and inclusive development.
This moment should also help us to deepen our regional integration. Inter-regional trade only represents 15 percent of Latin American exports, despite the fact that there are more than 60 trade agreements in force between the countries of the region. The time has come to make the most of these agreements and make them converge. The potential for a possible convergence between the Pacific Alliance and Mercosur, is one which particularly stands out. These two spaces together make up more than 80 percent of the regional population and more than 90 percent of its GDP and investment flows. Our region is bi-oceanic, it does not make sense to split it off between the Atlantic and the Pacific.
Latin America can not limit itself to being a taker of circumstances: it must create them
At the same time, we should boost our relations with strategic partners. In recent meetings with European and Latin American leaders, they have all expressed to me their desires to strengthen links with the region. In the short term, the priority objective is the acceleration of negotiations between the European Union and Mercosur, the updating of the agreement between Mexico and Europe and the continuing of the standardization process of the relations between the European Union and Cuba, which as of December entered into a Political Dialogue and Cooperation Agreement. Spain can take an important, leading role in this, and that is what Prime Minister Rajoy has interpreted.
The global context is complex and challenging. The next few years will put our capabilities of acting strategically, establishing priorities and engaging in clear objectives, to the test. Latin America cannot limit itself to be taken by the circumstances: it should create them. It should trust itself and build on its strengths. Instead of passively waiting for the next signal from the United States, we should send our own signal: a united, daring region, open to change without abandoning our values.