Foreign Policy In Focus
Nov. 6, 2008
When the Mexican dictator Porfiero Diaz said the great tragedy of Mexico was that it was so far from God and so near to the United States, the comment summed up the long and tortured relationship between the Colossus of the North and Latin America.
Starting with the Monroe Doctrine in 1823, the U.S. has routinely dictated the hemisphere’s political and commercial life and, on a score of occasions, overthrown governments it found inimical to its interests.
But the world has suddenly turned upside down.
From a collection of countries servicing U.S. interests, South America now boosts the third largest trade organization in the world, Mercursor, which includes Argentina, Brazil, Uruguay, Paraguay, and Venezuela. Chile, Bolivia, Peru, Colombia, and Ecuador have associate status, and Mexico is an “observer.” This so-called “southern common market” accounts for 50% of Latin America’s gross domestic product, 59% of its landmass, and 43% of its population.
The continent also recently formed the Union of South American Nations (UNASUR), which includes 12 nations, along with observers from Mexico and Central America.
This new found independence that will be sorely tested in the coming months as most of the world goes through an economic meltdown. In the past if Washington sneezed, South America came down with pneumonia. Will the current economic conflagration derail South America’s growing autonomy, allowing the U.S. to dominate the life of region?
The economic crisis will certainly have an impact on South America. Currency values from Brasilia to Mexico City have fallen. At the same time, most the countries in Latin America are in a better position to weather the storm than the U.S., Europe, and Japan, where banks play a larger role in the economic structure.
“No one can avoid the events of the past few weeks,” says Riordan Roett, director of Johns Hopkins Western Hemisphere Studies Program, “but we are seeing some countries better insulated than other countries.” (1)
Brazil’s foreign exchange reserves, for instance, amount to more than $216 billion, which should cover the country’s need for export credit until “the most acute stage” of the crisis is over, says Brazilian Finance Minister, Guido Mantega. (2)
And because the government of Luiz Inacio Lula da Silva has reduced poverty, thus expanding its internal market, the country is in a better position to weather the storm. “Brazil is not immune to the crisis,” says Mantega, “but this affects the countries with problems in their banks more, and countries like Brazil less.”
Argentina also has a substantial reserve in its central bank—$47 billion—and is hinting that it will delay replaying its $6.7 billion debt to western creditors until it can negotiate better terms. (3)
Venezuela has reserves of $30 billion, the largest per capita total on the continent, says Martin Saatdjian of the Ministry of Foreign Affairs, but the government is being careful. It is considering a “minor devaluation” of the Bolivar, Venezuela’s currency, and “austerity spending for the next fiscal year” if the crisis “deepens and the price of oil drops,” says Saatdjian. (4)
Caracas is spreading its oil wealth throughout the continent, which has cushioned the impact of the economic downturn. The fact that Venezuela purchased almost one-third of Argentina’s debt in 2005 has helped Buenos Aires build a rainy day fund.
Starting in the late 1990s, South America began diversifying its contacts with the rest of the world, in particular resource hungry China. Beijing buys Chilean copper, Cuban nickel and cobalt, Brazilian and Uruguayan soy, and Venezuelan, Ecuadorian and Bolivian oil and gas.
Trade between Latin America and China was $102.6 billion in 2007, (5) and the Chinese currently plan to invest up to $100 billion over the next five years. Brazil, Chile and Argentina have $28 billion in two-way trade with China, and China is investing heavily in Chilean copper and Venezuelan, Bolivian and Ecuadorian oil and gas. Beijing is currently negotiating a free trade agreement with Peru. Almost one-half of China’s foreign investment goes to Latin America. (6)
While China’s economy is slumping, that term is relative. It is still growing at 9%, and the Chinese government is taking steps to keep growth from falling any lower.
Russia and Iran have also becoming major players in Latin America. Russian Deputy Prime Minister Igor Sechin, accompanied by business leaders, just finished a tour of Cuba, Venezuela, and Nicaragua, and the Russians are helping to develop oil fields in Venezuela, Bolivia and Ecuador. (7) Iran’s President Mamoud Ahmadinejad has been welcomed in Venezuela, Bolivia, Ecuador, and Nicaragua, and Iran’s Chamber of Commerce announced Oct. 20 that joint commercial councils with South and Central America would soon be established.(8)
The U.S., on the other hand, is saddled with the legacy of its “Washington Consensus” policy of wide-open markets. The neo-liberal strategy led to ruinous debt in Latin America, a yawning gulf between rich and poor, and financial catastrophes like the 2001 Argentine collapse that impoverished half that country’s population.
The wreckage wrought by the “Washington Consensus” and International Monetary Fund’s (IMF) enforced austerity sparked an economic and political revolt in Latin America that is still gaining steam.
Brazil and Argentina paid off their IMF debts and concentrated on building infrastructure and alleviating poverty. The result has been a steady growth rate of more than 4%, which, according to Citi Bank forecasts, will fall next year, but probably not more than a percentage point. In contrast, U.S. and European growth rates are projected to drop to 1.5%, or even to zero. (9)
Latin America is “a better built boat,” says the World Bank’s chief economist for the region, Augusto de la Torre. (10)
Political independence is on the agenda as well.
In 2003, no major country on the continent backed the U.S. war in Iraq. In 2005 South America rejected a U.S.-led Free Trade for the Americas plan. And while Washington is hostile to left-led governments in Venezuela, Bolivia, and Ecuador, the rest of the continent has rallied behind them.
Rather than looking north, countries like Brazil are increasingly developing south-south relations. In 2003, Brazil, India, and South Africa formed the IBSA alliance, which met recently in New Delhi to discuss a joint approach to the current economic crisis, as well as food security and energy prices. Between them, the three countries represent 1.3 billion people. (11)
“Developing countries need to learn from the crisis,” says Lula da Silva, and “to construct a new world economic order.” (12)
The economic crisis has accelerated these moves toward breaking the strangle hold the U.S. has had on the world of finance. “There is a new reality,” says United Nations General Secretary Ban Ki Moon, “new centers of power and leadership in Asia, Latin America and across the newly developing world.” (13)
German Finance Minister Peer Steinbruck was blunter: “The U.S. will lose its status as the superpower of the world’s financial system. This world will become multi-polar…the world will never be the same.” (14)
Beset by economic crisis and bogged down in two unwinnable wars, the colossus of the north no longer wields the clout it once had. “In the past, the door for talks with the United States on any issue had to remain open. We had no choice,” a Brazilian diplomat told Southern Pulse. “Now we can close it if we want.” (15)
1) “Brazil’s Economy Standing Out,” St. Petersburg Times, 10/14/08
2) “Brazilian Minister: Curent Crisis Perhaps the Worst Since 1929”; Earth Times, 10/6/08
3) “Argentina Mulls Delay of $6.7 billion Dept Repayment”:Financial Times, 10/10/08
4) “How Venezuela Will Weather the Financial Crisis”: Znet, 10/11/08
5) “The Monroe Doctrine Revisited: China’s Increased Role in Latin America”: Eliot Brockner, Upsidedownworld.com, 10/15/08
6) “China’s New Latin America Revolution”: Financial Times, 4/5/06
7) “Russia Strikes oil Deal with Chavez and plans Modernization of Military”: New York Times, 9/27/08
8) Southern Pulse: Security in Latin America, 9/23/08
9) “The U.S. Crisis and Latin America”: Latin Business Chronicle, 10/6/08
10) St Petersburg Times Ibid
11) “India, Brazil, South Africa Summet to Discuss Global Financial Crisis”: Agence France Presse, 10/14/08
12) “Brazil Demands Strong Say in New Global Financial Rules”: Merco Press, 10/14/08
13) “America Loses its Dominant Economic Role”: Der Spiegel, 9/30/08
14) “Germany Sees an End to U.S. Hegemony”: Financial Times, 9/26/08
15) Southern Pulse: Security in Latin America, 10/23/08