Latin America

No other issue seeks to dominate the next few months than the troubles in the US economy. Besides the well documented mortgage lending scandal, the roots of the fragile US economy are the movement of large amounts of manufacturing jobs to China as well as the approximately one-third to one-half of US debt that is held by China, Japan and other foreign creditors in order to assist the US fund the wars in Iraq and Afghanistan. During the last week of campaigning a new nemesis has been created within the dialogue between Clinton and Obama, that is the NAFTA agreement and the threat Mexico and Canada pose to the US economy.

In reality the United States has often determined the course of NAFTA and its rulings since the agreement came into effect with Canada and Mexico in 1994. Until recently, Canada and Mexico have been the top trading partners with the United States, switching between Japan and the EU for top spot which has recently been adopted by China. Trade with the US and its neighbors is more than 92% with Canada and approximately 80-85% in Mexico and has increased more than 100 percent with both neighbors since 1994. The US’s NAFTA partners do not only export to the US, but import the majority of their goods from the United States, becoming a net benefit to US exporters in the process, especially those in border states such as Texas, California, Michigan and New York.

Problems encountered by the Canadian and Mexican governments often had to deal with the reality of the US holding a lot more economic weight and power in commercial activities, political weight, and control in official NAFTA hearings which often did not have any real power in enforcing its decision inside the US. Of great concern was NAFTA Chapter 11 which details the rights of companies to have legal recourse over government policies if they believed harm was done to them. This was one of the first times in international law where a company was represented without the support of a country, as before Chapter 11 only states had legal rights of representation under international law. In case law, American companies and policymakers who for the first time promoted the ability for a private company to gain a legal reward often supported this policy. The results were cases such as Metalclad, where a Mexican municipality was denied the right to stop the creation of a waste management plant, despite its concerns that it would harm the local environment. In S.D Myers, a Canadian law preventing the ban of toxic waste to the US was challenged as well, despite the regulations being there to protect the health and safety of the environment in both jurisdictions. Change only came in recent appeals in the NAFTA appeals hearing regarding Methanex, which challenged California state policy to prevent environmental damage inside the United States itself, the first of a number of appeals limiting the rights of companies over governments, namely the governments of California and the US.

Despite the recent criticisms by Clinton and Obama, it was Bill Clinton who ratified NAFTA during his time as President with no opposition from his wife, as well Obama who did little to appease the passing of NAFTA until the United States opened trade relations with China upon its acceptance into the WTO. The effect of the Methanex appeal is that the US trade policy has moved towards fair and equitable treatment of companies. As seen in the newest version of the US Trade Act and new trade agreements with Singapore and others, public policy is paramount over a companies rights over its investment as long the treatment is fair and equitable with due process and just compensation. This turn around took place not for Chapter 11’s negative effects on Mexico or Canada, but on the US itself. Policies from the US and American Labour Unions challenging Canadian softwood lumber, or taking the production of corn, a staple of Mexico, and limiting it through NAFTA rules was a power advantage of the United States over its greatest trading partners in many cases. As seen in NAFTA tribunal cases and trade policy, the US has nothing to fear from its neighbors, but more from its debt and poor leadership which has sent American jobs and money to China. Criticisms of Mexico and Canada have died out long ago, and do nothing but create scapegoats such as NAFTA in order to win votes in Ohio and Texas.

John McCain this week showed his prudency in this election campaign. Despite talk of referring to Mr. Obama as Barak Hussein Obama and actions by his opponents in defacing America’s good trading partners in Canada and Mexico, McCain had tried to keep the election campaign free of issues which seek to rip apart the country and mire the election in issues which do nothing more than to create a false crisis and give the Presidency to someone who can create the most paranoia for the American people. Ironically this tactic that was used so effectively by Bush is being countered not by the Democrats, but by another Republican. In reality, the Democrats are creating a lot of political tensions for something which has been created by American companies themselves. American companies have moved to Mexico and put Mexican companies out of the agriculture business while solidifying their control over staple Mexican products. American Auto manufactuers have taken advantage of the state sponsored health care system in Ontario to set up auto manufacturing in Canada. While these moves do hurt American manufacturing, it is the policies of American companies which have taken employment across the border.  Companies such as Walmart and other retailers have created the most intense changes in the modern US economy by taking advantage of loose rules and laws in China who is slowly absorbing the world’s manufacturing base without Labour Rights or accountability to its employees. Clinton and Obama would do well focusing on China as opposed to scapegoating Mexico and Canada. These two countries do more to purchase American goods than any other countries in the world. It is hard to manage a relationship with a giant, but it is impossible when that giant claims to be the victim of trade, when its certain the American people are being set up to be the victim of politics.

With the retirement of Fidelito, an assessment of the positives and negatives of the Cuban Revolution has taken place in media all around the world. People hate Castro as much as others love him, mainly because while he has injured many and denied basic rights to activists living in Cuba, he has also earned the respect of others by standing up to the United States and living long enough to brag about it. While this perspective dominates most of the globe, in Latin America there is a third dimension to Cuba. Success with specific social policies places Cuba in high regard in the areas of healthcare as well as anti-poverty policies in comparison to the rest of Latin America. Latin America is considered by many as the most unequal region in the world between the wealthy and the poor, accounting on an average 35-45% or higher of the population of the region living below the poverty line. Cuba on the other hand is well known in the region for having a less severe poverty than its neighbors. Cuban doctors and institutions are the regions best in many areas of medicine and medical research. These pros and cons of Castro’s Cuba has created the divided impression of the outcomes of the Cuban Revolution, especially among Latin America’s poor and those who have had to overcome multiple economic crisis in almost every country in the region since the 1960s.

Taking from the pages of Castro’s policies, Hugo Chavez is seeking to expand his support beyond those struggling to live in Venezuela towards others in the region. While Chavez has an amicable working relationship with most of his neighbors, his reputation in recent events has taken a beating. While he did help rescue kidnapped Colombians from the FARC, he also accused Colombia of plotting his assassination. He even angered the King of Spain who is considered a hero by many in a conference in Spain and few months ago, being told to bluntly “shut up” as recorded on Spanish TV by the King. Chavez also lost much of the support of his own people, losing in a referendum to solidify his power in Venezuela in recent weeks.

This week the International Herald Tribune did a story on Venezuela’s “Mission Miracle”, where Chavez for the last four years has sought to put the oil revenues of the recent boom to good use by giving free eye surgery to many who cannot afford in throughout Latin America. In many countries in Latin America the social heath care system leaves much to be desired, with private care and insurance covering many upper classes and leaving those who cannot afford it the inability to get more expensive treatments in the social health system. The issue of access to health care is currently a major one in the US election and could spark an election in Canada, a country which shares many attributes of socialized medicine but often cannot afford to treat many for complicated surgeries in good time as is the issue in Latin America. In the region, the same problems are exacerbated ten-fold with more than half of the population in some countries unable to access newer forms of treatments for the majority of their families. For this reason Chavez’ has gone to bring those in from all over the region to receive eye treatment which is often not as evasive as other surgeries and which allows people to maintain their vision, a vital necessity in a part of the world where people often have only themselves to keep them afloat. Newer and simple eye treatments are very expensive, but it is a simple way to cure the worries of many impoverished and ill patients all over Latin America.

In reality the support for Chavez comes from one hard reality in Latin America. Poverty and populism often comes together in one form or another, and if you seek to deal with issues on poverty you will always get a lot of support, no matter how tactless you many seem in dealing with the international community. While Fidel often had a lot more finesse than Chavez, many leaders in the region give Hugo a wide breadth because they know that poverty in the region is a never-ending problem and no one really knows how to solve it. With democratization in the region comes the power of voting, and people in dire straits will do what is best for their own personal lives…even if Chavez never shuts up and loses more tact in the future, people will vote for the person who will address their personal concerns in Latin America and in the next few elections throughout the Americas.

The Foreign Policy Association and The European Courier in February 2008 produced a Video Interview on Chavez’s Venezuela and the future of democracy in the country in a frank discussion with former UN Permanent Ambassador to the United Nations for Venezuela Diego Arria. In the interview, Arria describes how Chavez’s actions in the last few weeks and over his term as President have done nothing but to hinder the progression of rights and erode the political structures which exist in Venezuela. Chavez’s recent actions in accusing Colombia of working with the United States in order to assassinate him and his support of FARC rebels in recent political statements will only hurt Venezuela in the long run, according to Arria. The question of Democracy and Freedoms are compared with the legality of Chavez’s political actions in the recent loss a referendum to extend his Presidential powers and his suppression of Venezuelan media and the rights that oppose his Presidency. Arria also goes into how Chavez is keeping Venezuela out of the recent political and economic progress in Latin America that started in many nations of South America and offers his views on the possible outcomes of Chavez’s time leading Venezuela in the near future. Please take the time to listen to Arria’s sobering interview!

To see the FPA/European Courier interview with Diego Arria, click here.
To see Diego Arria’s Interview Video see below or click here:

Today the well known leader of the island nation of Cuba, Fidel Castro has started on the first steps to the end of his legacy. He retired finally after 49 years of rule since the Cuban Revolution. He is well known as the one of the only leaders in Latin America to successfully stand up to the United States and the man who took Cuba into the Cold War, socialized government and nationalized health care as well as tackling severe poverty in his country which remains an unmanageable historical inheritance in most of Latin America. He is also known for his suppression of media and independent protest in Cuba and has been characterized in many different perspectives by American directors to Simpsons writers to coalitions for the freedom of Cuba and expat Cubans living in Miami and abroad. Today he took a major step to the end of what is certainly known as Castro’s Cuba to most of the world.

The real effect will be on the Cuba people themselves. Since the fall of the Soviet Union the economy of Cuba has been supported by massive non-American tourism and petroleum supports from Hugo Chavez and investment from many unnamed companies who wish to avoid being caught under American commercial bans on Cuba. The likelihood of a large change right now is slim, as Castro will still have a large hand in the policy of Cuba while his brother Raul Castro deals with the continuing embargo and loads of tourists coming to the country. Many prospects of change have already started, as some restrictions on owning property have been weakened in the last 7 years. Foreign companies who wish to buy up anything from this tourist paradise have been able to in recent years as long as the Cuban government or citizens share 50% or more of the property. Cuban exports of sugar and tobacco products have found a place in Europe and abroad, and with the open market policies with other communist nations such as China, the restrictions on Cuba are not finding complete support as they once did in the past. The exception is of course the few interest groups who have direct ties to Cuba itself, who are not likely to forget Castro after only one or two generations living outside Cuba.

The expectation of quick change after Castro dies avoids recognition of the slow change that has taken place in Cuba since 1991. For the most part Cuba’s change is inevitable with Castro or without him. The Cuban government in reality has gained a lot of strength in the last 15 years and quick change will most likely come about if the Castro’s decide it, or if a new JFK happens to take great interest in Cuba and its future.

 Mexico has always had a mixed relationship with its citizens abroad. Problems dealing with poverty in Mexico have not tarnished pride in their roots. Class divisions never quelled a strong sense of nationhood with its citizens on every social strata. While many Mexican’s left the country since the 1970’s, it was often for economic opportunity which was hard to come by for many in the north of Mexico and in the southern estados, and was a way to escape living in the violent areas of Mexico City where opportunity disappeared in crisis after crisis following oil shocks and multiple collapses of the economy in the late 70s to late 90s.

What those on both sides of the border have seldom addressed in those years is the connection that those who have left Mexico have to their heritage in Mexico, and towards their new lives in the United States. Many in Mexico see those who left as abandoning the country, but with poverty rates of over 30% there was never any question that leaving Mexico was a logical decision by those who made the journey. The change in perception is stark, with new generations being born and growing up in the US often as Mexican-Americans, growing up speaking only English while listening to music in Spanish and being a mix of many diverse cultures. This relatively new culture would have never existed in Mexico, but is not seen as uniquely American by those who belong in it or those outside it. Many in this new culture love being “Mexican”, but are not treated as such in Mexico and often have a tough time becoming typically American in their own places of birth. Recently politicians in both countries have taken interest in this new community as well.

After years of not being noticed politically, since the 1990’s the Latino vote has become key in the next Presidential Elections in the US. The recent Clinton Campaign has relied on much of the Latino vote in the latest Primaries, with Hispanics in America, mostly of Mexican descent, making up a large portion of Hillary’s support in many American states. Mexico has noticed it may have influence as well, if it can re-adopt many of those forgotten Mexicans living abroad. Since the Presidency of Vicente Fox there has been efforts made by his Administration and his PAN party to generate positive relations with the United States on many fronts. Before the War on Terror, the Bush administration was seen as a key player on reforming immigration and helping re-connect Mexicans in the US and Mexico to produce closer ties. While these policies were abandoned for the most part, the interest of President Calderon of Mexico to re-initiate closer ties with the US remains. With the new President likely to be one who is open on immigration, Clinton, Obama and McCain will likely have a positive partner in Felipe Calderon of Mexico.

Calderon will not only have a positive partner in any President who is elected, but is reaching out to discuss policy initiatives and re-engage Mexicans of all backgrounds with Mexico itself. While he has an opportunity to put Mexico back on the agenda in the US, he must be careful not to be seen as dictating policy to the new American President who often lose support on their policies on immigration to the US, and must give a new respect to those Mexican-Americans who feel abandoned by Mexico and will make up a large portion of America’s educated and middle class youth in the future. While Calderon can rally all Hispanics on human rights for newcomers to the US, it will be an uphill struggle to gain complete acceptance from Americans and Mexicans in America alike.

Since the 1930s there has been a debate on how to compensate private companies when their assets they have invested from abroad gets Nationalised by local governments. These debates have always been heavy in Latin America which has been for the most part dependent on foreign investment since the colonial period and have been the most severe victims of economic collapse from abroad since the early 1900s. Carlos Calvo, an Argentine government official in the early part of the 20th Century created a philosophy on how to approach issues of Nationalisation of foreign property at the time. His theory eventually became known as the Calvo Doctrine, where the state would be the ultimate judge on when, what and how much is to be compensated during the Nationalisation of a private company by a state. Compensation to foreign investors has moved much more in balance with the needs of investors and a preference for international arbitration since then, but the old debate has arisen again in Chavez’s Venezuela.

This week Hugo Chavez has warned that he will not sell oil to the US if the judgment of a British court to award fair and equitable compensation for Venezuela’s nationalisation of assets belonging to Exxon Mobile takes place. The judgment, taken in a British court as accepted by both parties to the agreements, and compensation which was also agreed to upon the setting of capital investment in Venezuela by Exxon was agreed to by both parties through contracts before the investment took place and via treaty obligations accepted by Venezuela. This decision by Chavez is clearly behind the times in the treatment of foreign investment for any country anywhere and has not been an option for any state in the international community in more than 70 years. Severe cases in the past such as Iran’s nationalization of US assets in the late 70’s even valued the idea of compensation, where in the end compensation was paid to many US companies, albeit less than many of them expected.

The populist trend by Chavez has likely reached its height of cleverness awhile ago in the eyes of all but his most admiring supporters. Success in policies to help Venezuela’s poor at first were welcomed by the masses in Venezuela who wish for a way out of poverty. His attacks on Bush has become the trend by not only him, but many liberal policy supporters worldwide. Recently however his interruption of left wing President Zapatero in Spain which lead King Juan Carlos to tell Chavez to bluntly shut up has become an echo for many in the world community who are anti-Bush as well, but are far from being pro-Chavez. Ignoring international norms and laws such as those regarding compensation is another strike again a Chavez who must deal with a post-Bush world where left wing policies as those of Lula of Brazil are taking the place of socialist and capitalist policies which dominated Latin America in the 1970s to 1990s. Lula, a former factory worker turned policy chair of Brazil’s Worker’s Party and eventual balanced socialist President has been Latin America’s true left wing revolutionary, reducing poverty and working amongst all of Brazil’s social and economic classes to achieve results. Chavez’s non-nonsense approach has recently been seen by many as lacking tact, and perhaps embarrassing Venezuela not in the US where it doesn’t count for many, but internationally. In Venezuela’s latest referendum Chavez lost, and in the end populism is Chavez’s only real currency in the control in Venezuela. Offending the international community can be helped in aiding Colombian kidnap victims and forming partnerships with Iran and Cuba, but in the end populism and oil are very volatile commodities for any leader who wishes to control the fate of Venezuela.

I was lucky to be able to see a lecture at the LSE by the newly minted head of Argentina’s national bank after the first President Kirchner came into power. This was, as many know after a series of failed Presidents in a record amount of time and a massive financial collapse of Argentina’s economy. He was an impressive speaker, and basically said he was the new guy, he was sorry about what happened with the old guy, and that fiscal responsibility, proper market regulations, and slow and progressive growth was the only way to cure burst economic bubbles and ultra liquid financial markets.

In an op-ed by Paul Krugman of IHT.com he seeks out to compare the recent financial sub prime mortgage crisis to failed economies of Latin America pre-2001. While the United States definitely has come into financial crisis because of immoral lending practices, the foundations of the US economy are still strong and has a history of reforming market practices through economic policy and legal enforcement.

While many industries in the US are strong, the comparison between Latin America and the US is like comparing Bananas to Big Macs. In Latin America the crisis of Mexico, Brazil and Argentina were often not just connected to one product market or one industry, but was a result of hyper investment in newly promoted ventures in those countries, a response to state run industries being sold off while they still could produce a profit for in debt governments, and investment regulations which did not regulate hyper liquid investments which could leave the economy with one click of a mouse. While the US also has a massive amount of debt, perhaps one third of it via China, payment of debt was never and is not currently regulated by outside forces such as the World Bank and IMF. Outside debt lending obligations often put many Latin American countries into situations where debt payments pushed more of their population into poverty. At crisis levels of around 30-40% under the poverty line on average in the region, the effect on a country like Argentina is one of a Great Depression, not merely a Great Recession.

In Latin America the economic crisis often resulted in complete systems and economies collapsing due to market bubbles bursting in the Developed world. While the US dollar is down against many currencies, it also allows for US made good to become more attractive to local consumers and leaves foreign imports at a competitive disadvantage. There is also the fact that many trading partners of the US kept their currencies artificially low in order to sell more to the US. The current accusation is that China is currently doing this, and not more than three years ago it was known that Canada’s 64 cents US to one Canadian dollar was so low to help exporters to the US even though the value was likely 74 cents at the time. While Latin American countries such as Mexico, Chile and Brazil are now seen as surviving the current global economic storm, the US will also do so as they all currently have decent regulations and good economic fundamentals.

The issue with the US sub prime mortgage market and the new complexities of the banking system in recent years will effect the US greatly, but mostly it is a massive shot against the world banking markets and that industry. This has come about due to regulations which are not in time with the current markets, but also is a result of immoral, irresponsible and illegal business practices taking place in that industry which create overvalued products and economic bubbles. What the United States has in its favour however is the willingness and ability to prosecute those in any industry who seeks to hurt US markets and the economy with illegal business practices. While not always prosecuted in Latin America or worldwide, corruption and illegalities in commerce in the US is becoming more difficult as competition authorities and regulators crack down on actions which hurt the US and world economy. With actions against Enron, Microsoft, Conrad Black and others, the US economy has the ability to never enter a Peso Crisis or another Depression as their fundamentals will often adjust with haste to address any minor crisis in the US Economy. This does not mean the US will do well, but it does show that it can avoid hyper-inflation and market crashes which has plagued Latin America since the 1960s. Let us hope this becomes the case in most of Latin America as well.