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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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THE VALUE OF A REGION:
South America in the future global economic competition

by Félix Peña
May 2011

English translation: Isabel Romero Carranza


 

There are at least three reasons that lead us to have a cautiously optimistic vision of South America's future. These reasons are: the learning process experienced during the last decades; the clear signs of a cultural change with regards to what may be achieved in the future; and the impact of the deep transformations that are taking place in the global scenario. However, we should not overlook the huge difficulties and challenges that the nations of the region will have to overcome in the upcoming years. In a world of constant systemic change any exercise in foresight could prove dangerous.

Latin America is a heterogeneous region. The factors that support optimistic forecasts for its future may not have the same validity in each nation. However these become clear in those nations that are most important due to their size and economic relevance. These are countries with a potential for generating a spillover effect of their eventual success to the rest of the region. One of such nations is Brazil.

The growing value of the region was made evident by President Obama's visit to Brazil, Chile and El Salvador last March. Certain key issues of the future strategic agenda of the U.S. were visible during this trip.

If the most optimistic forecasts regarding the future of region were confirmed in the next years, taking full advantage of this would require moving forward in the articulation of the national interests of its countries. This articulation can only be feasible through collective leaderships. In this sense, the quality and density of Argentina's relation with every country of the region may become a key factor. On this regard, the strategic alliance with Brazil and Mercosur itself constitute the hard-core of the construction of a South American geographic space, in which UNASUR will be called upon to play an essential role.


Latin America is a region of increasing value in the perspective of relevant players of world economic competition. This becomes more evident in the case of emerging economies or, even more so, re-emerging ones such as China and India. It is reflected by trade flows and, most particularly, through direct investments. This fact does not go unnoticed by the United States or the countries of the European Union.

Such valuation is even more notorious in the case of South America. On this regard Marco Aurelio García, the international advisor of Dilma Rousseff who accompanied Lula all through his mandate, expressed in a press interview ("Última Hora" Newspaper, Asuncion, 28 March 2011, on: http://www.ultimahora.com/) that South America "is the world's most relevant region in terms of food production…additionally we have enormous mineral reserves of the conventional type, such as iron, and of the new generation kind, such as lithium. We also have both due to the size of the population and the social inclusion policies being implemented in our countries, the possibility, nay the reality, of a considerable internal market. We are almost 400 million South Americans and have become a main point of attraction. We have abundant water resources and biodiversity". He completed his idea on the great value of the region for the rest of the world by pointing out that: "Additionally, we possess characteristics that are essential to guarantee the quality of life. It is a region with certain cultural and linguistic homogeneity, which prevents us from being overburdened by the task of having to deal with several languages or a diversity of cultures. Moreover, it is a peaceful region. It is probably the only region in the world where there are no nuclear weapons, where there have been no conflicts between its countries for a long time. And if any conflict regarding border issues should arise, they can be easily resolved through diplomatic means. Moreover, -and this is key-, it is a region of democratic governments, voted in free elections and under international scrutiny".

A view such as this expresses some convincing arguments that allow having an optimistic view on the role of the region in the global economic competition of the future. These may explain the fact that in many cases, governments, businessmen and citizens are becoming increasingly assertive, pragmatic and optimistic.

Of course, the huge challenges that the countries of the region will need to overcome in the next years should not be overlooked. The advisability of remaining cautious, was recently forewarned by Jose L. Machinea, (El País, Madrid, May 12 2011, on http://www.elpais.com/). It is a known fact that in a world of constant systemic change any foresight analysis could prove risky. In the case of Latin America, given the image that has long prevailed in more developed countries -especially in Europe and in the US-, it has often been safer to predict negative scenarios. Today, however, there are some factors that lead to propose a more positive forecast with regards to the value of the region. This is most clear in the case of South America.

To begin with the shortcomings that may still be observed, it would be relevant to refer to the inventory of reasons that have for long fueled the skepticism on the region. The following are some factors that could eventually justify a continued pessimistic view regarding its future: the subsistence of poverty in large social sectors and, in particular, of great social inequalities; the low institutional quality reflected by a weak ability to ensure the articulation of contradicting social interests and the predominance of the rule of law in social life; the political instability as an endemic condition often leading to schemes that are not sustainable for efficiently dealing with the most serious economic and social problems; the insufficient number of businesses with the capacity to compete in international markets, which is the result of a low level of innovation and investment in science and technology. These factors, among others, have had prevalence in the analysis of the future of the region, leading to pessimistic conclusions even when they are assessed together with other factors of a more positive nature, such as the abundance of valuable natural resources.

Before mentioning the circumstances that would lead to a more optimistic view, we should remember that these not always surface with similar characteristics and the same intensity in every country of the region. Latin America -and even South America- is a vast and diversified territory. There can be no analysis of the realities and perceptions without acknowledging the differences, at times very deep, that exist between the countries. Therefore the factors that would account for a more optimistic forecast of the future of the region are not necessarily valid for every one of them. However, they are more visible today in certain countries that have become key ones due to their size and economic relevance, and that have thus a strong potential to generate a spillover effect of their eventual success to the rest of the region.

Even when other cases could be mentioned, one of these countries is Brazil. The deep changes that took place during the presidencies of Fernando Henrique Cardoso and Lula da Silva -and that would seem will continue under the current presidency- are transforming the largest country of South America in what may be a driving force of a more positive future for the rest of the region. Certainly, this does not imply that Brazil by itself can lead the rest of the region to different levels of economic and political development. On the contrary, the construction of a regional space that is functional to a scenario of peace, political stability and sustainable social and economic development will require an active cooperation between several countries, and even of those outside the region but with strong interests in it.

Having made this point clear, it is then possible to mention at least three reasons that would allow having a cautiously optimistic view of the future of Latin America.

The first of these reasons refers to those aspects in which the learning process that the region has undergone in the last decades becomes more evident. Firstly, the growing number of social and political leaders -representing a wide ideological spectrum- and of vast sectors of the public opinion in different nations who recognize the importance of fiscal discipline and macroeconomic stability to guarantee development goals within a democratic and open society framework. Secondly, the recognition of the importance of institutional quality to move forward in the areas of productive transformation, social cohesion and competitive insertion in world economy. Thirdly, the clear perception that in the current international system nobody will take up the problems of another nation -unless these affect them directly or indirectly- and that the destiny of any country -big or small- will need to be worked out at a national level with an active participation of all the society.

The need to reach the articulation of the different social interests and to achieve collective disciplines as a result of strong institutions; a home-grown strategy for economic development; and a competitive insertion in world economy are three lessons that several countries of the region and their public opinions are drawing from their experiences of the last decades. These have a strong impact on social attitudes and public policies.

A second reason to be optimistic is the existence of clear signs of a cultural change with regards to what the region may achieve in the future. These signs are related with the great value being assigned to the definition of long term objectives and to the development of pragmatic strategies to achieve them. This entails having a clear idea of where a country is headed to in terms of its development and its international insertion, what it can effectively achieve and, most particularly, which steps would be necessary to move forward along the chosen path. It is possibly in this aspect where the greatest differences between the countries of the region can be found. Deeply rooted structural issues, yet unresolved, including those related with the active participation of all the social actors in the development of the nation, can sometimes explain these differences. In some cases the countries are still on their way towards achieving greater social inclusion. These can account for a certain propensity towards political instability and even towards economic and social policies of a more radical nature. In such cases future perspectives are more questionable and uncertain.

The third reason is related precisely with the impact on the region of the deep changes that are taking place in the global scenario. As a result of this the countries of the region now have multiple options in terms of external markets and sources of investment and technology. As a consequence diversification in their international relations has expanded. They perceive that they have a significant value for what might be their contribution to face some of the most critical problems of the global agenda. Energy, food security and climate change are some of the issues about which the countries of the region -especially acting together- have something to say.

The growing value that the region is acquiring may be illustrated by the March visit of the President of the U.S. to Brazil, Chile and El Salvador (see our article published in Veintitrés Internacional magazine of March 2011, on: http://www.elargentino.com/). Seen in the backdrop of the profound changes that are taking place in the map of global economic competition and that reflect shifts in relative power between nations, it is possible to affirm that this visit goes beyond any short term motivation. It is within such perspective that the future relation with Latin America, and especially with South America, acquires its full strategic intent. It helps explain the value that Washington is starting to assign to a region that has been traditionally underestimated and perceived as lacking any reasonable options for its international insertion.

Three issues stand out among those mentioned by Obama in his visit. Indeed they are not the only ones but they are those linked with the factors that most influence the definition of the future strategic agenda of the United States, a country that has become aware of its role in the path towards a new era of the international system. These issues also help explain the underlying logic of the chosen itinerary. Brazil, as well as Chile and El Salvador, are involved in a greater or lesser degree with them.

The first of these issues is related to fossil fuels and energy. A few days after his tour of the region, Obama announced at the University of Georgetown the intention to reduce by one-third the oil imports by the year 2005 and urged businesses for investments to increase local production. Currently the U.S. generates only two percent of the world's oil production and imports eleven million barrels per day, i.e.: a fourth of world production. The uncertain signals, with a potential bearing on the future, sent by the oil producing countries of Northern Africa and the Middle East remind Washington of the vulnerability of the oil supply. This increases the need to obtain it from more secure countries and, at the same time, to develop alternative energy sources. The disaster of the nuclear plant of Fukushima in Japan contributes to complicate still more the future energy scenario, and not just in the U.S. At least for some time, nuclear plants will not enjoy the sympathy of the general public in many countries.

It is in this aspect that Brazil acquires a growing relevance, as it stands out in the field of biofuels. However it stands out in particular due to the giant-sized oil reserves discovered off its Atlantic coast. Brazil is thus entering the club of countries that are synonymous with hydrocarbons. If the so call "pre-salt" oil reserves -named this way for being located in the sea under 2000 of salt- can be extracted, -they have not been fully explored yet-, then Brazil would occupy the fifth place in world hydrocarbon reserves. A great investment effort in technology and infrastructure, transportation and logistics will be needed for this. Paired with the considerable investments that will be required for the Soccer World Cup of 2014 and the Olympic Games of 2016, it is not surprising that Brazil is generating so much interest among the businesses and governments of the main players of global economic competition including, of course, the U.S.

The second issue is related with the arrival of China as a rising player in the foreign trade and investments of South American countries. Such protagonism is showing in Brazil too, a country with which China has crafted a special relation through the BRICS group and also with regards to the relevant issues of the G20. According to a research published at the end of March by the Brazil-China Business Council, in 20110 Chinese businesses invested or announced investments in Brazil that could reach 30 billion dollars, of which about 8.6 billion were still under negotiation. (See Carta Brasil-China, N° 1, March 2011, on: http://www.cebc.org.br/). In ten years, Brazil's exports to China rose from one billion to 30 billion dollars, whereas its imports went from 1.2 billion to 25 billion in 2010. Between 2009 and 2010 reciprocal trade grew fifty-two percent. China is now Brazil's first commercial partner. A similar evolution can be observed with regards to China's trade and investments in other South American countries, including Argentina. (See the article by Osvaldo Rosales on Chinese trade with Latin America, on: http://biblioteca.fstandardbank.edu.ar/). The future projections indicate that such trend will continue to evolve.

There are other emerging economies that are starting to stand out in the region; such is the case of India. However, it is unquestionably the growing Chinese presence that is getting the most attention from Washington. Additionally, it is related with the interests of the U.S. in the Pacific region. Precisely one of the issues in Obama's Chilean agenda was that of the trade negotiations of the Transpacific Partnership that seeks a common framework for the free trade agreements celebrated between the participating nations (see http://rc.direcon.cl/noticia/2922). It represents a potential market of approximately 500 million people. It is an initiative in which Chile plays a relevant role as a promoter and which includes the participation of the U.S., Malaysia, Peru, Vietnam, Brunei, Singapore and New Zealand, and it is open to other countries of the Asia-Pacific region.

The third issue is related with migrations and, most specifically, with the significant growth of the Hispanic population in the U.S. As is the case with the other two issues, this one also entails multiple possible developments. The visit to El Salvador -with its two million Salvadorians living, many illegally, in some large cities such as New York, Washington and Los Angeles- had a strong symbolic purport.

These possible developments are linked with some of the most sensitive aspects of the future U.S. agenda and of the current political debate. They involve public security (the gangs or "maras") and drug trafficking. But, above all, they have to do with the fact that not all Americans accept the consequences of a cross-breed and multi-cultural society, of which Barak Obama is a clear outcome. This would explain many of the statements that the American President made on this regard in his Rio speech.

The data of the last US census is telling. It was made public almost at the same time of Obama's trip to Latin America. The "Latins" or "Hispanics" constitute already 50.5 million of the U.S. population, 43% more than in the previous census. They represent nowadays 16.3% of U.S. population. This percentage was only 12.5 ten years ago. It increases even more if only people under18 years of age are considered. Hispanic births and migrations represented 56% of the growth of the American population since the previous census of 2000. The have become the first ethnic minority, after the "Non-Hispanic white" majority, that represents 64% of the total population. In relation to the other significant ethnic groups, that of "African-Americans" (13% of the total) and of "Asians" (5% of the total), the Latin group is the most numerous and fast-growing of them. Politicians are not indifferent to this information. Data from the census is the basis for the proportional assignment of legislative seats. Neither is it indifferent for the Union's States, where Hispanic population is increasing, and especially considering that by 2050 it is estimated that one in every three inhabitants will be Latin. Within such a perspective in many political and cultural aspects Latin America is becoming more relevant for the U.S., both externally as well as locally.

Finally, if the most optimistic forecasts regarding the region were to be confirmed in the next years, taking full advantage of this would require moving forward in the articulation of the national interests of its countries. This could only be feasible through collective leadership. In this sense, the quality and the density of the relations between Argentina and every other country of the region could become a key factor. On this regard, the strategic alliance with Brazil and Mercosur itself constitute the hard-core of the construction of a South American geographic space, in which UNASUR will be called upon to play an essential role.


Recommended Reading:


  • APEC, "Investing Across Borders - APEC. A benchmarking report on foreign direct investment regulation in the APEC member economies and other economies", Asia-Pacific Economic Cooperation (APEC), APEC Investments Experts' Group, Singapore 2011, en: http://publications.apec.org/.
  • Baldwin, Richard; Evenett, Simon (eds.), "Why World Leaders Must Resist the False Promise of Another Doha Delay", Centre for Economic Policy Research (CEPR), A VoxEu.org eBook, London, 28 April 2011, en: http://www.voxeu.org/.
  • Cornes, Richard; Sandler, Todd, "The Theory of Externalities, Public Goods and Club Goods", Cambridge University Press, Cambridge - New York 2003 (second edition - digital printing).
  • Dellepiane Cálcena, Carlos, "Bibliografía de la Política Exterior Argentina - 1810-2010", 2 tomos, Academia Nacional de la Historia, Buenos Aires 2010.
  • Hackett, Clifford P., "Monnet and the Americans. The father of a united Europe and his U.S. supporters", Jean Monnet Council, Washington DC. 1995.
  • Iglesias, Eduardo; Gasol Varela, Claudia (coords.), "El rol de los gobiernos subnacionales en los procesos de integración regional. Reflexiones sobre el caso del Foro Consultivo de Municipalidades, Estados, Provincias y Departamentos del Mercosur", CARI-CEBRI, Buenos Aires 2010.
  • IRI, "Relaciones Internacionales (1990 - 20 años del IRI - 2010)", Revista del Instituto de Relaciones Internacionales de la Universidad Nacional de La Plata, Año 19, N° 39, La Plata, Junio/Noviembre 2010.
  • Low, Patrick, "WTO Decision-Making for the Future", WTO, Staff Working Paper ERSD-2011-05, Geneva, 2 May 2011, en: http://www.wto.org/english/res_e/reser_e/ersd201105_e.pdf.
  • Mace, Gordon; Cooper, Andrew F.; Shaw, Timothy M. (edits), "Inter-American Cooperation at a Crossroads", International Political Economy Series, The Centre for International Governance Innovation, Palgrave, Macmillan, Houndmills, Basingstoke - New York 2011.
  • Rivera Andueza, Raúl, "Nuestra Hora. Los Latinoamericanos en el Siglo XXI", Prentice Hall, Pearson, Santiago de Chile 2011.
  • Rocha Gomes, Keiti da, "Internacionalizaçâo das Empresas Brasileiras no Mercado Argentino", Instituto de Pesquisa Económica Aplicada (IPEA), Texto para Discussâo n° 1597, Rio de Janeiro, marco de 2011, en: http://www.ipea.gov.br/.
  • Rodrik, Dani, "The Globalization Paradox. Democracy and the Future of the World Economy", W.W.Norton & Company, New York - London 2011.
  • Valdés, Raymundo, "Lessons from the first two decades of Trade Policy Reviews in the Americas", WTO, Staff Working Paper ERSD-2010-15, Geneva, 17 December 2010, en: http://www.wto.org/.
  • Wolfe, Robert, "Did the protectionist dog bark? Transparency, accountability, and the WTO during the global financial crisis", Entwined, Policy Report, Stockholm, March 2011, en: http://www.entwined.se/.


Félix Peña Director of the Institute of International Trade at the ICBC Foundation. Director of the Masters Degree in International Trade Relations at Tres de Febrero National University (UNTREF). Member of the Executive Committee of the Argentine Council for International Relations (CARI). Member of the Evian Group Brains Trust. More information.

http://www.felixpena.com.ar | info@felixpena.com.ar


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