Think Again

Think Again: Latin America

America's backyard is no longer an afterthought -- or Washington's to claim.

"There's no reason for Obama to be going to Latin America now."

On the contrary. Former U.S. President Richard Nixon once famously told the young Donald Rumsfeld that "people don't give one damn about Latin America now." (To be fair, his view of the region may have been colored by the experience of being pelted with rocks in Caracas while on a vice presidential goodwill tour in May, 1958.) Today, with popular revolutions upending the political order in the Middle East, an unprecedented natural disaster devastating Japan, and his own government hovering on the verge of shutdown, it may seem odd to many that U.S. President Barack Obama is choosing to embark on a five-day tour of a region often considered an afterthought in international politics.

But in fact, Obama's trip south is important for long-term U.S. interests, and long overdue. In today's economic order, where the G-20 is essentially a board of directors with only minority shareholders, the United States needs strong allies. Brazil is the ideal partner: large among the emerging countries, democratic, free of internal tensions, and without enemies. Cultivating that relationship is essential if Washington wants to continue to exercise leadership in the region. The recent turmoil in the Middle East also reminds us again of the fragility of energy security in the United States, and the importance of Latin America as a reliable source of renewable and nonrenewable energy.

Other powers have begun to take notice. China, for one, seems to have a strong strategic interest in a region where the U.S. is losing influence. China is Brazil and Chile's main trading partner, and in 2009 and 2010, the China Development Bank agreed to lend more than $35 billion to borrowers in Argentina, Bolivia, Brazil, Ecuador, and Venezuela (mostly under "loans-for-oil" arrangements). This is three times what the Inter-American Development Bank approves every year for the region as a whole.

U.S. political and business leaders, on the other hand, often seem reluctant to look to Latin America for opportunity, hampered as they are by outdated views of the region as dangerous, economically stagnant, and politically backward. With the U.S. losing market share to other countries eager to invest in and trade with Latin America, it is time to dispel some myths hanging over the region.

"Latin America is an economic failure."

Not anymore. Alan Greenspan devoted a chapter in his memoir to Latin America's proclivity for populist politics, which he defined as a "very special brand of short-term focus, which invariably creates very difficult long-term problems." Greenspan's observations were probably seasoned by the disastrous decade of the 1980s, during which the region suffered from chronic severe debt crises and hyperinflation. Today, Latin America is on a path of remarkable economic stability and growth thanks to macroeconomic policies that have brought low inflation and sustainable public finances.

The global recession was a small bump in the road for most of Latin America. Today, the region is growing at an average of 5 percent per year, inflation is in single digits and fiscal deficits are small. Public debt as a share of GDP is much lower than in the developed world. Chile and Peru are the two countries that stand out in terms of economic performance, but considerable success is also apparent in Brazil, Colombia, Mexico, Panama, and Uruguay. Rating agencies have granted all of them investment-grade status, which means that the risk of a default is extremely low. (Argentina and Venezuela are the two salient exceptions in the region.)

This is not just good luck, but a result of good policies. China's insatiable appetite for the region's natural resources has certainly helped, but the more important factor has been responsible macroeconomic management, a choice widely supported by voters in Latin America. Center-left governments -- like those of former President Luiz Inacio Lula da Silva and his successor Dilma Rouseff in Brazil, former President Michelle Bachelet in Chile, and former President Tabare Vasquez and President Jose Mujica in Uruguay -- have made macroeconomic stability a pillar of their economic strategies.

"Latin America is ideologically divided."

Not as much as you think. Many think that there is an ideological race in the region, reminiscent of Cold War tensions between East and West Germany. The popular perception is that one of the camps is led by Venezuela's president, Hugo Chávez, while the other camp is formed by the right-of-center governments of Colombia, Chile, and Peru.

In reality, most countries -- with the notable exceptions of Bolivia, Cuba, and Nicaragua -- have definitively rejected Chavez's "21st century socialism," which is based on heavy state intervention, forced nationalizations, and fiscal profligacy. The disastrous economic consequences in Venezuela are visible: Inflation hovers at around 30 percent and investment has been falling continuously since 2007. The economy contracted by 1.4 percent in 2010, in sharp contrast with the rapid growth of other countries in the region. Fewer and fewer countries are tempted by the populist rhetoric and the attacks on private enterprise.

A pragmatic Latin American consensus has emerged in contrast to the more ideologically driven Washington consensus. This new thinking combines market-friendly policies with a much more ambitious social agenda. While preserving macroeconomic stability, both left and right governments are aggressively combating poverty with programs like conditional cash transfers, first introduced by former President Ernesto Zedillo in Mexico, which have become a model for countries outside the region. Latin America's economic growth and effective public interventions have created an unprecedented expansion of the middle class. In a forthcoming Brookings publication with Homi Kharas and Camila Henao, we estimate that by 2020 10 percent of Latin America's population will enter the global middle class, bringing nearly 60 million individuals up to the same level of income as lower-middle-class citizens in such European countries as Portugal and Italy.

"Latin America is violent and dangerous."

Yes, but not unstable. Latin American countries have among the world's highest rates of crime, murder, and kidnapping. Pockets of abnormal levels of violence have emerged in countries such as Colombia -- and more recently, in Mexico, Central America, and some large cities such as Caracas. With 140,000 homicides in 2010, it is understandable how Latin America got this reputation. Each of the countries in Central America's "Northern Triangle" (Guatemala, Honduras, and El Salvador) had more murders in 2010 than the entire European Union combined.

Violence in Latin America is strongly related to poverty and inequality. When combined with the insatiable international appetite for the illegal drugs produced in the region, it's a noxious brew. As strongly argued by a number of prominent regional leaders -- including Brazil's former president, Fernando H. Cardoso, and Colombia's former president, Cesar Gaviria -- a strategy based on demand reduction, rather than supply, is the only way to reduce crime in Latin America.

Although some fear the Mexican drug violence could spill over into the southern United States, Latin America poses little to no threat to international peace or stability. The major global security concerns today are the proliferation of nuclear weapons and terrorism. No country in the region is in possession of nuclear weapons -- nor has expressed an interest in having them. Latin American countries, on the whole, do not have much history of engaging in cross-border wars. Despite the recent tensions on the Venezuela-Colombia border, it should be pointed out that Venezuela has never taken part in an international armed conflict.

Ethnic and religious conflicts are very uncommon in Latin America. Although the region has not been immune to  radical jihadist attacks -- the 1994 attack on a Jewish Community Center in Buenos Aires, for instance -- they have been rare. Terrorist attacks on the civilian population have been limited to a large extent to the FARC organization in Colombia, a tactic which contributed in large part to the organization's loss of popular support.

"Resurgent Latin America is a Threat to U.S. Interests."

Quite the opposite. Listen to some of the rhetoric in Washington and you would think that Latin America only impacts the U.S. economy by sucking away manufacturing jobs and flooding the country with illegal immigrants. The truth is that U.S. economic interests are more entwined with those of its southern neighbors than ever. This is an overwhelmingly positive development.

For instance, U.S. oil imports from Latin America are larger than those from the Middle East. Saudi Arabia, Iraq, and Kuwait combined make up only 20 percent of U.S. oil imports. Latin American countries -- specifically Venezuela, Mexico, Ecuador, Colombia, and Trinidad and Tobago -- account for one third of U.S imports. For the United States, assuring a stable oil supply from its Latin American neighbors should be no less important than preserving stability in the Middle East.

Also, the Latin American consumer market is by no means irrelevant for U.S. companies. The region's GDP is $4.2 trillion, roughly 84 percent of China's $5 trillion. With only 40 percent of China's population, Latin America's average per capita income is twice that of China's. Therefore, Latin American households are important consumers of U.S. manufactured goods and services. For example, in 2010, 20 percent of Citicorp's overall profits came from Latin America.

While the Middle East is currently forging its own path toward democracy and Asian nations are rapidly competing with the United States for global market share, the United States can partner with its democratic Latin American neighbors to set a strong path toward mutual economic prosperity.

Stronger hemispheric economic integration is the natural first step. But moving forward in this direction requires debunking the most pernicious myth. Many in Washington still believe that the United States is exporting jobs to Latin America. Rather, the opposite is true: The region buys goods and services that generate jobs in the United States. Mexico is the second-largest market for U.S. exports, Brazil the 8th, and Colombia the 20th -- even without the passage of the pending free-trade agreement. Their combined imports from the United States in 2010 exceeded $210 billion, which represent thousands of jobs in America, especially in the manufacturing sector. But today, Latin America has signed free-trade agreements with countries like Canada and South Korea that can supply similar goods. Signing the pending free-trade agreements with Panama and Colombia would be an effective way to preserve U.S. competitiveness in the region.

Economic success, social inclusion, and political assertiveness are the buzzwords of the new Latin America, a region that now exudes confidence and optimism. Long-term U.S. strategic interests will be much better served by a re-engagement with this often-ignored neighbor.

President Obama is exceptionally popular in the region, and can play a transformational role in hemispheric relations. But to do that he will need to begin by challenging Washington itself, slaying the demons and self-serving misconceptions that muddle a clear view of Latin America.

AFP

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