Every so often a story of a unique nature, crossing many different previously unrelated countries and debates arises when studying Latin America and globalisation. Colombia has now become one of the destinations for migrants who wish to go to the US, but originally coming from Africa, as opposed to from the rest of Latin America. Many issues involving African migrants relate to threatened Somalis going to Yemen and Saudi Arabia as well as economic migrants coming into Europe, in both cases via make shift boats or via smugglers that overload otherwise structurally sound smaller boats. The debate surrounding African migrants has dominated migration and human rights issues in both regions. The issue of legal rights and security for African migrants has become one of the most difficult policy concerns to address for many in the Middle East and Europe. Detailed accounts of lives being lost at sea, and refugees being returned to Africa has constantly headlined papers in Spain, Italy, Malta, Portugal and the EU as a whole. Accounts from human rights agencies have often criticised inhumane treatment of African boat people by the government of Yemen and even EU border patrols in the Mediterranean and between the African coast and the Spanish territory of the Canary Islands. Now African migrants are showing up in the Caribbean, and it is curious to find out how and why this is occurring so far away from Africa.

Cesar Sabogal who writes for the South African publication Mail & Guardian Online published an article this past weekend on the movement of African migrants towards Colombia specifically. According to Colombia’s head of intelligence and migration service, African migrants choose Colombia as a destination in the Americas due to its access to the Caribbean Sea and Pacific Ocean and its close proximity to Central American ports to help gain access into the US. Many claim refugee status in Colombia as well, despite Colombia having one of the highest rates of internally displaced citizens in the world. Many people trafficking networks have sprung up in Colombia; in some cases being run by African’s themselves. In 2009 alone, Colombia expelled 285 African and Asian citizens, with the average African paying approximately $5000USD to be trafficked into the US. Colombian officials also pointed out that many traffickers end up working with or for drug traffickers as well, trading information on routes to access Central America and the US. While many African migrants claim refugee status in Colombia, it is difficult to know who is a refugee for human rights issues and who is an economic refugee. Most migrants who reached Colombia were from Somalia, Ethiopia, Sudan, Benin, Zimbabwe, Côte d’Ivoire and Liberia, according to the foreign ministry. Colombia also receives migrants from Asia, but most are African migrants who often come to Colombia’s port of Buenaventura.

African migrants to Latin America do not only arrive in Colombia according to Luis Andres Henao of the same publication above. In his November 2009 article, he discusses the number of Africans seeking refugee status in Argentina and Brazil. With restrictions in Europe now becoming increasingly enforced against many African asylum seekers, countries in the Americas have become a second distant options. In Brazil alone, 65% of asylum seekers originate from Africa, and in Argentina, 3000 African refugees now reside with 1000 refugees a year coming into the country from abroad, mostly from Africa. This growth trend comes with increasing security in Europe and will likely increase exponentially as trade flows from Asia and Africa grow with the Southern Cone and refugee policies remain the same in Colombia, Argentina and Brazil. A debate might arise, as immigration in North America is often seen as adding to nations already full of immigrants in addition to the same issue and the rationale in Europe as creating a young workforce to support the tax base for the large number of retired people that will become an issue in most developed countries in the near future. In Latin America however, which is a relatively young population, and the source of many émigrés to North America and Europe might see refugees from Africa as defying the cultural norms and displacing work that many locals do require. This traditional immigrant debate will be one of interest if the African and Asian refugee trend continues to the region, as Argentina, Brazil and Colombia have also had large numbers of immigrants come to their shores in the past, and have made for an intriguing cultural dynamic in Latin America.

Jorge Castaneda is a policymaker and professor of great interest who writes about Mexico and Latin America as a whole. During my time working in Washington DC, it seemed like he put off many policymakers inside the Beltway during his time as Mexico’s Foreign Minister as part of the Fox Administration from 2000 to 2003. Many claim he left that position in 2003 due to his open and honest approach, some would say overly honest approach, towards policymaking between the US and Latin America. Currently he teaches at NYU, and over the years has produced some very strong centrist articles and books on topics covering Mexico, Latin American foreign policy and US foreign policy towards Latin America. Last week he wrote a fascinating article in The New Republic that will likely characterize policy towards the region over the next decade. The Article at TNR.com called Adios, Monroe Doctrine: When the Yanquis go home is Mr. Castaneda’s contribution to the series of New Years 2010 articles predicting the future of the region over the next twelve months and longer. He discusses the lack of involvement the US has had in the region over the last few years, and is one of the few experts on foreign policy in the region who has praised the reduction of US involvement, while pointing out that the US needs to still realize its natural role within Latin America.

Castaneda is one of the few writers on Latin American relations who writes in the same un-tempered fashion in Spanish for the Latin American audience as he does in English for a mostly US based audience. While policymaking involves wording criticism diplomatically as well as achieving goals which are often based on compromise as well as interest, his activities as an academic at NYC allows for open critical thought as well as a balanced and realistic approach towards US-Latin American relations. This is surely a result of his time as a diplomat affecting his time as an academic, and is appreciated on a practical level. His recent article is a reflection of this, as he asks the question whether the lack of US involvement is due to an inability to control conflicts in the region, or does the US simply not care about Latin America as a whole? He points out two major issues in the region over the last decade, that of the degree and failure of US involvement in ousting Chavez, and the will to construct an immigration wall on the US-Mexico border. Generally those two “major” policy events have had little impact on US relations as a whole. Chavez’s experience in possibly becoming a victim of an assassination attempt has become the core thesis of every speech he has given since 2002, and will soon be put on the big screen by director Oliver Stone, and the poor economic conditions in the US has reduced the number of migrants crossing the border for the time being. US allies in the region have had their own successes, namely Brazil economically, and Colombia in ensuring its own internal security, or at least giving a lot of reassurance to Colombia’s citizens that the government is regaining control for the first time in a generation. The leftists in the region have had some influence as well, but have not changed the environment for the US to such a degree that massive involvement by the US in the region would make a difference for Obama or the US in general. Most left wing criticisms still do focus on the US, but a lack of action by the US might force left wing leaders to claim personal responsibility for any internal issues as opposed to using the US as a scapegoat, whether they had involvement or not. The history of the US in Latin America does give a lot of ammunition to leftists in the region, but with Venezuela still selling oil to the US and Ecuador still basing its currency on US dollars, rhetoric does not seem to have much influence these days on actual policy, albeit as long as everyone knows where to draw the line between actions and words.

Castaneda writes that two events might return the US to its former position as hegemon of Latin America. While many elections in smaller countries have been influenced by left wing leaders in Latin America, a country like Peru, with a lot of US investment, might create a cause for a stricter response from the US if this larger and wealthier nation were to become the next Venezuela. Recent nationalisations without just compensation of industries in Venezuela by the office of the President is likely the expected line in the sand for US involvement in Venezuela, but would not be seen as acceptable towards US companies in Peru. Another action that would likely elicit a strong response from the US is the increase in physical activities between Iran and Venezuela. While Brazil has opened some ties with Iran economically, political ties linking weapons or nuclear exchanges has been discouraged in Brazil. These ties however have been encouraged by Chavez in Venezuela, and while Castaneda claims that those ties are simply rhetoric in nature at the moment, he also states that a physical exchange would bring a strong response from the US, especially considering the amount of Russian arms that have been flowing into Venezuela recently and if those arms are found to be sent to Iran, or nuclear material is found to be send to Venezuela.

While we often write about similar issues on the Latin America Blog, it is interesting to compare and contrast similar debates with other experts. While there is a lot of agreement on the issues, I wished to note that there was no discussion of trade between places like China, and how that might affect US relations with Latin America, as it would affect relations between the US and Iran, or the US and Africa. I encourage comments on these topics and hope that everyone will take a moment to read Jorge Castaneda’s article. It is quite fascinating.

Every year at about this time gadflies of the region indulge in the publication of the Latinobarómetro poll. The survey chronicles opinion on a spate of questions among 18 Latin American nations. This year (the survey focus changes a bit every year) views on democracy and the free market formed the basis of pollster’s questions. The 2009 study, published in cooperation with The Economist last week, is especially interesting given the global recession and number of elections held throughout the region over the past year.

There is ample good news in Latinobarómetro’s findings. With the exception of Mexico, Latin America endured only a tangential blow from the global economic crisis, in stark contrast to the region’s setback from recession at the beginning of the decade. Perhaps because of this support for the market economy reached record highs in many countries. Interesting qualifiers to this are Colombia and Venezuela. Despite years of stable growth and a smart avoidance of global headwinds, support for the market economy has waned in Colombia, whereas in Venezuela over 65% of respondent’s expressed support for market economies, up some 20 points over 2007 findings. As The Economist notes, “the poll offers a warning to Mr. Chávez.” Though 45% of Venezuelan’s still back his government, 81% of those polled believe private enterprise is essential for economic development. Region wide, one-third now accept that privatizations were beneficial for their country, up from 22% in 2003.

Views on governance also give cause for celebration. For the first time since the poll began in 1995, governments garnered higher approval ratings than the armed forces, a real coup (no pun intended) for a region with hundreds of military interventions in its past. Satisfaction with democratic performance has reached its highest point in Latinobarómetro’s history; only in Peru is democracy less popular than it was in 1996. In Uruguay, a stunning 80% are satisfied with the way their democracy works. Popular opinion, in Honduras and throughout the region, was also strongly opposed to the coup in Honduras.

A few troubling trends are still at play. Support for democracy is coinciding with the worrying trend of extended presidential terms. Additionally, exceptions to generally positive trends are often found among the larger economies in the region, such as Colombia and Mexico. (Luckily, Brazil is a part of the good vibes.) Views on social issues are far from consistent. Homosexuality is becoming more widely accepted, even if homosexual marriage is still less than popular, but on the other hand, the same proportion of respondents (36%) believe that women should stay at home rather than work as was reported in 1997.

Development is an uneven slog, easily prone to criticism for what remains to be done or what appears to being undone. Two decades ago Latin America was uniformly undemocratic and there were few market economies. Change slowly began in the 1990s and accelerated in the 21^st century. Now the vast majority of states are democracies—though impaired some may be—with market economies—though undiversified some surely are. But as the 2009 Latinobarómetro study attests, people throughout Latin America are becoming more supportive of democracy and free trade, surely because they are realizing a better life for themselves as a result of liberalization. The glass is looking half full.

Andres Oppenheimer of the Miami Herald wrote an intriguing piece recently on the splash effect of the coup, or crisis, or whatever term least offends someone of Honduras’ new leadership and recent election, and how the major powers in Latin America have tried unsuccessfully to remedy the situation. Oppenheimer argues that the US, Brazil and the OAS have all succeeded in failure in their own unique ways. Failure for the three comes as follows. For Brazil, its “hypocrisy” of recognizing Iran’s and Cuba’s undemocratic leadership, while criticizing Honduras’ recent elections. For the US, the “flip-flopping” that comes with a constant backtracking of statements on Honduras. This is most poignantly shown in the support the US gives to the new government, while asking for greater cooperation, often after the fact when it is too late to alter elections or policy decisions. The OAS, comes in with its own actions of “one-sidedness” for taking the side of Zelaya completely and ignoring the rights and established powers of the institutions of Honduras and their legal system in ousting the former President. The Oppenheimer article is one of great interest and makes very strong points against the major powers in the region, one well worth a read.

Many of the criticisms of the article, the main powers in the region, and the Honduran actors themselves are not ones that began or will end in Honduras. The key question is why we are so interested in Honduras in the first place? The result of their elections will not have any significant effect on the region, and many of the countries in Central America are more left wing or more right wing than Honduras’s will ever become. It is more likely that the reaction by the powers in the region come at a time where their future foreign policy and their position in the world has not yet been scribed, namely, this minor coup; or whatever one might call it, is the first real test of new governments in the US and new foreign policies that have yet to be refined in Brazil.

Working from the ground up, the OAS often sways with the wind that blows the strongest, namely the US can push the OAS in the direction is most desires with the response coming from states which have previously not been members, such as Cuba, or those who have limited sway in the region leading its greatest opposition. In the end, words are exchanged and little is enforced without the push from major powers in the region. The US position on Zelaya shaped much of the OAS’ reaction as most of the Americas initially responded to the crisis in Honduras in a similar fashion.

The US on Honduras is a symbol of America’s lack of effectiveness on many foreign issues, but is more of a reflection of the passive response to Latin America by the US since 2002, with the exception of Mexico in 2008 and to some degree Colombia. A reflection of this is the successful operation in freeing Ingrid Betancourt and strikes by the Colombian Army against the FARC. While success came from the Colombian Army and US assistance, the rescue was attributed in the narrative to Colombia’s relative strength, even freeing some US citizens in the process. Giving credit to Colombia’s armed forces was paramount in the discussion of the rescue and the events which took place before the operation. In the narrative, the US gave a lot of the credit to Colombia itself, downplaying US intelligence support in the war against the FARC as a whole. Since 2008, the US role in Latin America has not yet been well defined. After a lack of attention since the second year of the Bush Administration and the new economic challenges creating an environment of protectionism vs. globalism, debates on Latin America in the US has yet to come to a clear policy decision. If the US wants its neighbours to become economic partners in the Americas, it has done little to reinforce this policy among its allies in the region. If the US decides to pull back from its international role and solve its economic and policy challenges on its own, most of its allies will take issue with this stance on foreign policy worldwide. Honduras is the first major issue in the Americas for the new US Administration, and to some degree “flip-flopping” is a result of indecisiveness in general and the lack of interest in Honduras when the media focus was not highlighting the problems with Zelaya and the Honduran government. Whatever the US plans to do with Honduras, it is likely not going to affect the final outcome of the new Honduran leadership, nor become the beginning of a new US policy towards Latin America.

Brazil is in an interesting position. Zelaya, knowing the possible influence Brazil will have in the future in the region and worldwide, chose to take refuge in the Brazilian Embassy in Honduras, thus dragging Brazil in the middle of the discussion on Honduras. Many on the left and right of the political spectrum see Brazil as a natural mediator to the region’s political debates. Brazil is a rising power, and can speak to everyone without being named as having a clear bias for or against the Chavistas, Castro supporters, US Hawks or US allies in Latin America. This position however is challenging as Brazil’s influence also is pressuring it to side with one international power or the other. Recently Brazil has welcomed representatives from Iran, and previously from Israel as well. Brazil is comfortable maintaining open ties with Venezuela and speaking directly to the US and Obama, as well as China and Europe on the many forums on the world stage. Brazil seeks to avoid many debates past issuing statements in order to keep an open path to growth and ties with any nation who wishes to support Brazil’s growing economy. Actions by Brazil which might be seen as “hypocrisy” could also be defined as avoiding conflict with major powers globally and in Latin America to keep Brazil growing at the expense of local and regional issues that at the moment do not directly affect Brazil. While the US is often pushed to decide on a policy on foreign conflicts, Brazil is simply being pulled into a conflict that many in Brazil would surely be happy to avoid completely.

The possibility of a lack of interest in Honduras by major powers could explain many contradictory policy actions my major powers in the Americas. The OAS, US and Brazil will eventually have to choose which relations in the region are worth promoting for internal reasons, and might have to create clear policy approaches to allies and foes in the region. Honduras and actions by Zelaya have polarized many supporters on each side of the debate, but issues in that country likely will not define the future of the region, or policy responses by major powers in the region in the long run. I cannot disagree with the conclusions of Mr. Oppenheimer, but at the same time the actions by the three agents of change in Latin America do not surprise me when discussing the crisis in Honduras.

In the last few weeks, tensions in the Andean region grew as Chavez in one of his many speeches said that Venezuela should prepare for a hundred years of war, presumably referring to cold relations with its neighbour Colombia. The installation of seven future US military bases in Colombia brought much criticism as historically Latin America has not had the best relations with US intervention as a whole. While many of Colombia’s neighbours made a point of discussing their displeasure with the new military bases in the region, Chavez took it as another step to remove him from power in Venezuela.

The Economist magazine wrote an interesting piece last week on the building tensions between the two countries. The closing of successful trade ties, Colombians and Venezuelans being murdered at the border, Colombian’s increasing support for Mr. Uribe, and the lack of will for average Venezuelans for any war, never mind a one hundred year war, was the main focus of the article. Regarding security, the author claimed that Colombia’s well trained forces would likely be too much for Venezuela’s army, with the exception of new Sukhoi fighter bombers purchased from Russia over the last few years and new equipment in recent months. In reality, the security situation is more complex, as old powers and new powers race to establish ties in Latin America and Africa. Growth in some Latin America economies have brought much attention to the region, while security concerns have also been portrayed as being in the centre of a global security debate involving China’s economic influence, Iran’s nuclear ambitions and US hegemony in its own backyard and abroad.

While Colombia continues to maintain its ties with the US and its passive War on Drugs, Venezuela has been actively making stronger ties with foreign powers abroad in order to increase its security status and become a bigger player in the Americas. The problem with this is that while most of the actions by Chavez and his government are likely being done to gain support within Venezuela, they might lead to harsh reactions by others in the region if diplomacy is not considered to be an integral part of policy development between neighbours. Russia’s military exporting agency gladly takes order from Venezuela for top of the line fighter bombers, Anti-Aircraft systems, tanks, heavy lift helicopters and some large transport aircraft. Many aircraft publications detail the number, routes and types of aircraft being sold to Venezuela, many which can be used for civilian use or are upgraded versions of Sukhoi fighters bought years ago.  The most dangerous of the equipment bought is the S-300 anti-aircraft system, which is considered one of the most advanced in the world. While equipment purchases are large, it does not create a strong political tie between Russia and Venezuela, not more than what existed before. This may change, but it is unlikely to do so over the next few years to any great degree.

Recent active policy from China to secure markets which many Western countries tend to neglect or put trade conditions on have been the target for much of China’s limited expansion abroad. This has been economic in nature, but much of the wealth has also gone into updating China’s military capabilities by developing new aircraft and weapons locally and contracting and licensing the production of Russian weaponry to be made in China, along with buying much of the equipment outright. China has been opening trade ties with many countries in Latin America, through credit agreements and investments in the region as well. Some policy experts have claimed that the interests in the region have gone beyond economic, as talks of deep water ports and links with Cuba and Venezuela surface. While no concrete actions have taken place, the suggestions of deep water ports, which are signs of placing a blue water navy beyond local seas, could become a major issue in the future as the US and China seek to balance their power and security abroad.

Chavez this past year has taken great strides in solidifying Venezuela’s relations with Libya and Iran, visiting the Middle East and becoming a media partner of both leaders on several occasions. He even went as far as claiming Colombia was Latin America’s Israel, albeit while maintaining many of his ties with the Jewish community in Venezuela. The latest security issue on the world stage, Iran’s nuclear capability, also has a dimension in Venezuela as reports of open trade and technology transfer between the two nations grow. Claims by Chavez that a nuclear program with help from Iran would be of interest to Venezuela have also become an issue of some concern. While Iran’s “peaceful” nuclear program is a question of much debate, the suggestion that Venezuela might seek its own program with help from Iran may escalate the security situation in Latin America to become not one of a hundred year war, but one that would illicit a quick reaction from Venezuela’s adversaries, especially that of the US. Nuclear weapons near a US border from Iran would likely create massive support in the US against Venezuela, even with an Oliver Stone documentary in the works. As the Economist article suggests, while it is likely Chavez is simply posturing, there may be a point where a suggestion of war may become a reality..even if it is not intended.

This upcoming week and month will bring attention from the FPA towards Latin America. In addition, Fareed Zakaria interviewed Alvaro Uribe, President of Colombia last week and the interview was aired this past Sunday. Brazil and Rio de Janeiro has also won their bid to host the first Olympics for Brazil and South America as a whole, but issues abound as developing countries will always be seen in the light of the negative and positive aspects of the last Olympics in China, a fellow BRICs nation where order and progress might not include all Carioca in this celebrated event.

A book signing by Ambassador Heraldo Muñoz will take place on October 8th in New York City. Heraldo is the Permanent Representative of Chile to the United Nations and Chairman of the United Nations Peace-Building Commission. He will discuss his new book, “The Dictator’s Shadow: Life Under Augusto Pinochet” at the lecture and book signing. Those of you in New York who would like to attend can find the link to the event here on the FPA website.

Later in the month, a lecture series supported by the FPA will be presenting His Excellency Ambassador Arturo Sarukhan, Ambassador of Mexico to the United States. He will be speaking on: “Mexico’s Foreign Policy and the Current State of Mexican-American Relations.” For more information on the October 21st event, please see the link here.

Fareed Zakaria has interviews numerous leaders in the Middle East and Latin America last week. His interviews with Chavez, Ahmadinejad, and Gadhafi last week were topped off with a short interview with President Alvaro Uribe of Colombia, which was aired this past Sunday. I have a great appreciation of Zakaria’s work and focus on global policy issues and thought his interviews last week did bring out important questions and concerns, which were politely asked and validly addressed and pressed upon in all three initial interviews. Uribe’s interview, while informative, did lack deeper questions and seemed to be a lot shorter than those last week. Generally Zakaria asks many questions of leaders which I have always wanted to know myself, but often can only find in Spanish language or Arab language media. The interview with Uribe was altogether good, but for a leader who is likely the most popularly elected leader in the Western Hemisphere, certain questions were absent for the most part. Zakaria is well aware of the threats on Uribe’s life, 15 and counting, and Uribe answered those questions diligently. What I believe was lacking was questions on Colombia’s position and evidence regarding foreign support for the FARC and other internal terrorist movements in Colombia. This was a disappointment due to the lack of attention in English language media on the topic and the fact that in the interview with Chavez, conflict with Colombia was addressed but not responded to in the accompanying Uribe interview. As well, claims by US and Canadian officials denying support for an FTA between Colombia and its northern neighbours did not enter into the discussion, despite the growing debate over the country’s human rights record. This would have been interesting as the US and Canada has a trade policy that avoids criticizing similar or worse human rights records with other US and Canadian trading partners, namely China and for Canada, China and Cuba to name a few. While the agreement will be passed it seems between Canada and Colombia, an election in Canada was almost created over the issue two weeks ago and another election might be started ironically on the lack of trade between Canada and China as seen in early election commercials by one of the opposition parties. No matter what position viewers might have taken on Colombia and associated issues, a discussion on those topics would have informed us better on a situation that many have opinions on but few really understand.

Now for lighter fare, Rio de Janeiro has won their bid to host the 2016 Olympics, being the first South American nation to host the event ever. Mexico did host it nearly 40 years ago, but for the continent to the South it is a deserved first. It seems that the Olympic Committee is starting to see themselves as the ones who should pick the winners of the global economy in the future, but success does not always come from the event even if the country does well post Olympics. China received much criticism of their treatment of Tibet and Uigurs in the build up to their Olympic games and many citizens in Beijing lost their rights to property and their homes in the process of building grand structures for the games and making China look issueless in the process. The Committee should have expected this and many protestors sought to hold them to account for it.

Regarding Brazil, like with China and other developing nations, the Committee should consider questions of poverty and the benefit to the whole. If they choose to pick winners for policy reasons that often slide into issues of security and economics, then the result of that progress should be taken into account. Brazil has done its best since the 1980s to reform every aspect of its society, reduce poverty and balance the economy, even successfully in the latest economic storm. Crime and poverty however will be a major issue in Rio even in 2016, and while these issues cannot be resolved in such a short time, a focus on reduction and avoiding the repeat of China 2008 where the disadvantaged in China were ignored by China and the Olympic Committee is unacceptable in 2016 as it was in 2008. I do have faith that Brazil will do its best to provide for all events, and have learned from China 2008 on what not to do and who not to avoid. Boa Sorte Cidade of the Cariocas!

This past week has been filled with numerous interesting policy stories and interviews regarding issues that affect every nation in the world, focusing on those regions such as the Middle East and Latin America, which seem to be the source of much of the security tensions for the members of the UN Security Council.

First to address the return of Zelaya to Honduras, mind you within the legal jurisdiction of Brazil. Manuel Zelaya, the removed elected leader of Honduras finally returned to Tegucigalpa after several attempts. He arrived with unknown help, but ended up inside Brazil’s Embassy in the Honduran capital. Arrests were attempted and protests ensued, but he remains there for the time being as the OAS and US push for a meeting between Zelaya and the “new” leaders of Honduras. The reality is that Central America is often not a principal concern for many major powers in the Americas, but major powers often determine the outcome of politics in Central America as opposed to the people themselves. The role of Brazil, who many see as South America’s political giant is somewhat skewed in this incident, as often Central America is left alone to the sphere of the US. Brazil might unwillingly be dragged into the Honduran mess in a mediation role and since the US is surprisingly supporting Zelaya, Brazil may be the only country in the region who can be seen as somewhat impartial in this incident as is usually the case in the region. Even though the US and Venezuela are supporting Zelaya, the reason why Honduras has become for the first time in its history a subject of national interest is because Zelaya’s attempt to be elected indefinitely mirrors the populist approach Chavez has taken in Venezuela successfully. Obama’s support for Zelaya may be tantamount to his speech in Cairo, showing a new moderation towards past opposition, in this case leftists in the region, and a balanced approach to policy. It does not seem to be working all that well unfortunately, as possible interference by Venezuela in Honduran affairs cannot be balanced by an impartial Brazil and is not being critcised by the US in any substantial form. This leaves the “new” Honduran leadership with few options but to hold up a strong front against Zelaya, one that will remain at the doors of the Brazilian Embassy as not to cross into Brazil’s legal property inside Honduras. As long as Zelaya is accused by his opposition in the Senate and Judiciary of Honduras, the likelihood of allowing Zelaya to regain any position of power will result in more protests and cracking down of protestors. The only positive aspect of a likely messy outcome is that at least they are not in Iran.

Larry King on CNN brought two surprise interviews this past week with Hugo Chavez, and Mahmoud Ahmadinejad, and Fareed Zakaria will be interviewing Gadhafi this weekend. Gadhafi has received a lot of attention recently with his extended speech at the UN and the scandal in the UK regarding the release of a convicted terrorist and their return to Libya due to illness. Before that incident however the relations between Libya and the western world were luke warm. The issue that will likely have the largest impact long term is the open policy actions by the UK government mixing business interests with justice issues, as opposed to actions by Gadhafi himself which were most likely expected by anyone who knew anything about Libya. The view of the British people shows that their government might be doing something which many in developing regions have accused western powers of doing for decades, placing oil before rights, and this will bring down the Labour Government and tarnish Mr. Blair’s reputation and keep Mr.Brown in the political crosshairs where he essentially has always been. Like Honduras, Libya’s issue will die out with a lengthy investigation or the death of the Lockerbie bomber, and the world will refocus on the major players, which brings us to King’s interviews.

The first one I was able to see was the one with Hugo Chavez. It was an interesting interview, but no new information came out of it that Chavez did not speak about in length whenever he had the opportunity. Three comments stood out as one’s of interest in my opinion. Chavez compared his military spending as being one-tenth of that of Colombia. Documented information makes his claims quite puzzling, as Venezuela has purchased and continues to purchase a great number of top of the line Russian military equipment. Compared to similar equipment in Colombia there is no threat from the Colombian army technologically. Colombia also has internal security issues, claimed by Colombia as supported by Chavez himself and would be able to justify large amounts of spending. Chavez’s fear was that Colombia could attack Venezuela as was done briefly two years ago against Ecuador when raiding a FARC encampment seems to the root of his security concerns, but with people dying in Colombia possibly due to arms coming from Venezuela, he might not be the innocent party between the two countries.

Chavez also spoke about his past detention and referring to Bush as the devil. He is convinced that in his past detention in Venezuela and afterwards that US agents were trying to kill him. He didn’t explain how he knew this was the case, but there will be an Oliver Stone movie coming out about Chavez soon that will likely explain as little as Stone movie about Castro did.

The issue that caught my attention was King’s question on why Chavez is supporting Iran’s government, despite the popular protests taking hold there. Chavez noted that internal issues of a state are internal, mind you Chavez often involves himself in the issues of other countries, but for some reason when blood is spilled for a similar cause he stands for in Venezuela and is crushed in Iran, then it seems to be allowed. This is nothing less than disgraceful to those in Latin America who had to endure real threats to their lives and those in Iran who peacefully protest and are cut down in the streets while Chavez ignorantly tours the Middle East. They both shared the perspective that Israel’s “genocide” was the issue that dominated internal issues in Iran and Latin America, although I am unsure why possible crimes in another city gives the right for someone to kill their neighbours in their own city. Chavez did acknowledge the Holocaust unlike Ahmadinejad. He also said he was a friend of the Jewish people and even said he was a Colombian himself. Previously he also said Colombia was Latin America’s Israel; maybe he is an Israeli too?

In the interview with Ahmadinejad, the issue of Venezuela did come up. Two points were addressed by King that were related to Venezuela. One was the fate of the young girl Neda, who was shot during a protest. Ahmadinejad supposed that in Venezuela a similar incident took place where two cameras were fixed on the victim before they died in a protest in Caracas. He didn’t say much after that, but it hinted that the death was arranged somehow, and they left it at that. The second issue that was asked by King of both leaders I believe was the growing ties between Iran and Venezuela, especially ties to nuclear energy. While both countries are energy giants with vast oil reserves, the persistent development of nuclear energy and ties with Iran and Iran’s aggressive stance in the region might turn Chavez from Castro minus the wit into a major security concern, or another “missile crisis” with Iran and Venezuela pressuring western powers in Europe and the US with ballistic missile threats in both the Middle East and Latin America. With the discovery of a new secret nuclear plant in Iran and a cohesive stance being built in the Security Council, it is likely that sanctions will not be seen as sufficient in dealing with Iran, and any nuclear activity in Venezuela may be swiftly dealt with by the US itself. The reality is that a minimal percentage of people in Venezuela and Iran would give their lives in a war to keep either leader in power. Both claim the right to any activity they wish as a sovereign state, but when other states are affected by their actions, a right to respond is also within reason. It could be that Zelaya is returned to power and Gadhafi simply retires as their allies enter into armed conflict over issues that do not need to exist. King’s interviews did not bring to light anything new, but his great questions did confirm the worst expectations most have of leaders who wish to define their destiny as populists who do not mind claiming sovereignty over local jurisdiction while involving themselves aggressively within their regional issues.

Whatever people may think about Fidel Castro, he is likely one of the luckiest and most challenging leaders towards his opponents in the last three generations of world history. While his actions towards the surviving opposition, journalists and opposing leaders in Cuba is less than civil, and Raul Castro himself was responsible for executing much of their opposition at gunpoint, current leaders who wish to emulate Fidel and fight against Obama’s America might not be as lucky or as intelligent as Fidel Castro, and might find themselves on the wrong side of history as Western powers move towards a greater consensus and middle powers start to ally themselves with the West, China and other states which prefer to control their own destiny.

While the perspective of many Americans often is the opposite of their European colleagues, a similar 8 years of the Bush Presidency will likely not become an alternative to any policies of the Obama Administration. With respect to local US issues, especially the current health care debate, to become like Canada or Europe from a health perspective is often not desired and often not understood. Most Americans do actually have very decent health care coverage, as do most Canadians and Europeans. Administering such care often lacks in many systems from one problem to another. After living in the US, UK, Canada and Spain, I would say problems and scandals abound, but also that the debate in the US might allow other nations to debate their own systems and resolve their own issues respectively. The debate is the benefit, but locally nothing will change much in the end for the most part. The dialogue is of a certain value however as Obama and his international perspective, the move towards a right of centre government on the European continent and middle powers now being able to work with the US without being tarnished by Bush allow a consensus to be formed on how to approach trade with China, rogues states such as Iran, North Korea and to some degree Venezuela and find commonalities between Europeans, Americans and other similar countries in dealing with a globalised world where nations seem to be choosing where to camp and prosper for future security and economic strength. A good example of the fallacy of this in the UK will likely come at the political career of Mr. Brown and perhaps Mr. Blair, as the consensus seems to not look favorably on making economic deals in spite of security. Britain will most likely endure a political change in order to being itself on board and regain respect from its allies, soldiers in Afghanistan and its political class.

Fans of Castro or those who seem to believe they have as much luck and intelligence often are those leaders who have a substantial amount of oil or somehow have been able to gain weapons technology and have a population which is controlled and oppressed so that no information leaves or enters the nation. This latter example is that of North Korea, who seems to be forgotten on the world stage, at least outside of Northern Asia when they are not kidnapping Japanese or Korean neighbours or shooting surface-to-surface missiles towards Japan and Hawaii. While the North Koreans have more in common with old Soviets than old Cubans, it is likely that they will stay that way for generations as China seeks to re-integrate culturally with the world and keeps its foot on North Korea and its actions.

Iran’s popular uprising is slowly degrading Iran’s leadership and the legitimacy of the government to justify any legitimate justice in society through a government which is habitually hiding its abuses and justifying its nuclear ambitions despite any evidence of the latter. The regime will likely come to and end at the footsteps of its infamous Evin prison as its leaders seeks to murder more and more of its citizens in order to keep itself in power. Consensus on Iran will likely reach the point where Western journalists, citizens and others will be kidnapped or killed for having contact with the country and its regime, or the regime will play its last card like North Korea by claiming nuclear capabilities, but unlike North Korea who is surrounded by a weaponised China and Japan, Western powers and their political allies who have lost many in Iraq, Afghanistan and Pakistan would likely come to brutal terms with Iran, especially since Iran’s Diaspora and locals have made a strong point to show the illegitimacy of their government and its lack of support. As well, the will of many in Iran to fight a full scale war to support a leadership who is illegitimate and likely will begin a war in order to regain legitimacy will be difficult. Weapons capabilities of Iran come with a few modern SAM batteries at best, not coming close to the defense capabilities of North Korean or even Venezuela. Iran will likely never reach the point of becoming a Cuba or North Korea, as people inside Iran have already published their new revolution and spilled blood in the 1980s and in 2009.

Venezuela is the most curious example, as support for the poor and measures against Chavez has given him more legitimacy due to strong opposition and addressing poverty issues directly, but moves towards closing down opposition media, enabling himself to be elected indefinitely and making it illegal to criticize the government. As he tours the palaces and homes of leaders who have openly killed many of their own citizens in other nations, Chavez seeks to turn Venezuela into an Iran or eventual North Korea optically, but the severe opposition and debate in Venezuela and open discussion about Chavez inside and outside of the country by many from Venezuela and others with interests in the region keep Chavez as more of an empty threat than anything else. Colombians, who are enduring yet another cold war with Venezuela often do not have issues with Venezuelans themselves, and vice versa. Despite this, Venezuela has purchase some advanced weaponry from Russia and China and is seeking closer economic ties with Iran, seen in Chavez’s recent tour of the Middle East and opening petroleum trade with Iran. The popular support of Chavez, coming from poorer rural supporters ties in well with a history of poverty and popular uprising in Latin America, but when popular support in Iran is met by unequivocal support by Chavez of Iran’s regime, it simply leads leaders and Kings of other nations to simply tell his to quiet himself, as opposed to opening a dialogue on poverty reduction and popular support for all, whether it be Iranians on the streets of Teheran or impoverished in the slums of Caracas. Ties with Iran might do so much to see Venezuela as a possible target, but no one takes Chavez serious enough it seems to come to a consensus on the issue…A problem that Fidel Castro never had with Cuba since the Missile Crisis.

The yearly two month Cold War between Colombia and Venezuela has come this summer amidst talks between the US and Colombia to place approximately seven US bases in Colombian territory in order to aid US anti-drugs forces. A week ago as a response, Venezuela withdrew its ambassador from Colombia and is threatening to restrict trade relations between the two countries. Claims by Chavez that Colombia is Latin America’s “Israel” has mapped the policy approach Venezuela has taken against Colombia. Some who support Chavez’s point of view echo the same concerns, but support for and against the US and Colombia taking closer security ties has not placed the entire continent against Colombia, in a larger way, actions between Colombia and its neighbors is making Venezuela look more like the region’s “Iran”, as opposed to making Colombia into Latin America’s Israel.

Venezuela, Ecuador, Uruguay and Bolivia have expressed their stance against the US bases, even though there was one US base in Ecuador until recently. Trade restrictions by Chavez against Colombia may refocus attention on the US’s criticisms against a Free Trade Agreement between the US and Colombia, but might backfire due to many US policymakers wishing to not support actions by Venezuela against Colombia. Evidence found by the Colombian military that some critical FARC bases were located in Ecuador lead to an attack last year, culminating in last year’s two month Cold War among the Andean states. Upon analyzing the rubble, more information was found as claimed by Colombia’s government showing support for the FARC coming from Venezuela itself. In reality, claims by Chavez always are measured against his belief that the US will assassinate him, or lead an invasion of Venezuela via Colombia. While this might be at best plausible and very unlikely, Venezuela, as opposed to Colombia have been purchasing some of the best weapons technology worldwide, arming its Air Force with the SU-27 series of fighter interceptors which are continually upgraded and can match any other fighter jets worldwide, especially the 1970s era F-21/Kfirs used by Colombia’s Air force. Venezuela also mobilized its military on the border between the two nations last year after Colombia attacked the FARC base inside of Ecuador in order to prevent an invasion by Colombia inside Venezuela, as claimed by Chavez. While not reported in much of mainstream media, tacit support for the FARC by Venezuela was claimed by Colombian officials as including heavy and advanced weapons from the Venezuelan Army directly, as well as funding for the FARC being signed off by Venezuela’s leaders themselves.

While the debate continues regarding Chavez’s extent of support for the FARC, in the Middle East, Iran’s support for its clients in Hizbollah have been quelled with an open election in Lebanon showing popular support against them and protests in Iran itself showing how media blackouts and oppression of the opposition can only fool some, but not many as young Iranians continue to protest amongst bullets and continually are subjected to torture in Iran’s infamous Evin Prison. The recent referendum allowing Chavez to be elected indefinitely does not hold the same opposition limits as elections in Iran as the electorate still ahs the ability to vote out Chavez if desired. This is not as easy as one would think, as opposition leaders claim that during elections there are numerous acts of opression. One current example is a recent law against media who choose to attack the ruling government, stinking of a growing fight against the opposition, many who claim that in elections they have been not only silenced, but people have disappeared for opposing the Chavez government. This will now become law, unfortunate for any journalists in Venezuela or those who choose to criticize Chavez and plan to work or visit there. While Chavez does enjoy some popular support and has taken many actions to fight against poverty in the region, his support for Iran’s government and against populist support for the opposition in Iran runs against the basic ideologies of Latin America’s populist leader and shows how Chavez’s self interest and power in the region overrides his ideology that the people’s will should control the state. His support for Iran’s government is so absurd that a recent law allowing the Iranian government to execute those Muslims who convert to other religions, including Christianity, would surely persecute those who would convert to the same faith as the majority of Venezuelans share themselves.

The rest of South America has stated passive opposition or simply left Colombia’s sovereignty to Colombia in this policy mess. While many including Lula of Brazil feel that the addition of bases could have been handled more tactfully and openly, in the end the US bases will likely be set in some form or numbers. With regards to Venezuela, a unlikely US attack would more likely come from the numerous bases located across the waters from Caracas in Louisiana, Texas, Alabama and Florida, where a good number of US Forces are based. The support for bases in Colombia in this case does not make a great deal of sense, as unless short haul aircraft are used to track narco-trafficking, many of the air bases in Colombia would be within an hour flight from the US in any case. This is a matter for debate, and I encourage readers to place their comments, but for me the question is not whether or not the US should be able to have bases in Colombia, but more so why would they need them considering the troubles politically having them on Colombian soil?

UPDATE August 8th 2009: According to the BBC World Service Broadcast, Venezuela has now returned its Ambassador to Colombia. Accusations by Colombia today that Chavez has been supporting the FARC may have had some influence on the return of the Ambassador.

The last month of economic news has been as diverse as the last 10 months of the same forecasts. With the start of July, the drop in recent markets worldwide and predictions of further problems in large economies such as the UK and Japan set to bring the recession further attention, but by mid month the result was that some US banks were making some profits, even paying back small sums of money to Mr. Obama and some auto manufacturers were not destined to be completely eliminated as stability slowly crept back into market forecasts. While these announcements will likely change in the next few weeks as SME’s continue to wind up their companies, the biggest market change seems to be coming from China and India. While many believe that only 8% growth in China may be the limit in order to stave off mass discontent among its population, growth rates of 5% or more in places like India, and lower yet stable rates in Brazil draw attention to hopes of an economic recovery coming from the recently famous super emerging economies of the BRICs. Of great interest and increasing popularity, Brazil, who has managed to maintain a stable growth rate in their economy since the 1990’s global economic troubles between 3-5% and was able to reasonably shield itself from the meltdown of Argentina’s economy in 2001. Brazil is beginning to change into the next large emerging market economy in form and function. The recent recession has taken the new Brazil and brought its relative successes in the last few months into the meeting rooms and policy branches of those economies who wish to change the relationship between North America and Europe towards South America’s largest and most promising economy.

In the Americas there are two large economies outside of the United States that while being hit hard by the recession, have managed to keep the core financial and economic systems of their countries in good shape. Canada and Brazil have stood out as two of the largest stable economies in the Americas and worldwide. With banking systems that have not collapsed and reserves of cash from past years of growth shielding some of the effects of the global economic crisis, both countries could begin to push the Americas and world economy back into positive territory. Limits to BRICs and other relatively healthy economies may be restricted formally and informally however depending on how the EU and US decide to react to other large economies worldwide. Effects on countries such as Canada and Brazil might be produced by restrictions coming from the new Buy America provisions in the US or as an example, be expanded by talks of a possible EU-Canada Free Trade Agreement. Limiting trade between NAFTA partners in North America and retracting from agreements between the US and trade partners in the Americas is what all trading partners of the US fear in the region as well as globally.

Many experts on global economics such as Zakaria and Khanna see the US as possessing a major role in the future world economy, but also one of shared influence and regional power as a necessity. Limits to expanding the economies of the Americas in a united fashion is seen in the lack of interest in regional trade agreements and the lack of support for trade agreements as with the one with the US and Colombia. While the US seeks to put pressure on its economic allies during the recession, the EU is seeking increased open trade with large economies such as Canada, India and China, and China is seeking many economic ties with countries such as Peru, Chile, Venezuela, Argentina and of course Brazil. Even Canada has ratified a trade agreement between itself and Chile, Colombia, Costa Rica and is working on agreements with CARICOM. Effects from Buy America might better regarded as the Buyer Beware provisions, as the US creates a policy environment to push its allies to trade with other economies outside of the Americas and produce economic legacies outside of the US which will strangle future growth of private industry in the US itself. As with any investor, the prospect of future governmental and trade restrictions by doing business with a US company or investor will produce negative incentives in the long run. With so few healthy investors currently, economic legacies such as Ford, Disney, Coca-Cola and McDonalds may be replaced by those created and grown in other healthy economies outside the US and the Americas…bad economic policy is simply a caveat emptor of economic growth.

Not all US policy experts agree with Buy America, and some even have been making attempts to approach Brazil as the next India or China. Mind month, the publication and discussion of the new book: Brazil as an Economic Superpower? Understanding Brazil’s Changing Role in the Global Economy was accompanied in Washington DC by a discussion of Brazil as a rising global economic power. This book launch and discussion followed the Brooking Institutions release of interesting economic data and reports on the region as a whole. Many of these discussions focus or Brazil or Latin America as the next China or India, but in reality the Latin American method or growth and that of growth in China, India and Russia only bare some basic similarities. Latin America and Brazil have traditionally depended on commodity prices principally. While the Brazilian economy is fairly diversified, a large portion of its GDP does come from commodity and oil prices, which is similar to a country like Canada who have a great deal of GDP linked to natural resources. Manufacturing in all economies, including Canada, Brazil, China and India have been greatly affected, leaving China with a growth rate of 6.1% in the first quarter of 2009. While oil prices and other commodity prices have bounced back and forth since 2008, manufacturing has taken severe hits in all nations. China and to a certain degree, India, depend greatly on the demand in foreign markets on US and global consumer spending. Entrepreneurial Organisations such as the SBA.org in the US and CFIB in Canada would be able to make the point that many of the jobs in the US and North America depend on SME’s, and with the increase in bankruptcies and the lack of business loans coming from banks in any financial state, the job loss will only increase and create a further decline in consumer spending. Manufacturing depends on its consumers being able to purchase its good and grow the economy. China, who produces many of these good in the US and EU are entirely dependent on these economies as their growth is directly linked to US and EU consumers. Brazil, while dependent on consumer spending has less than 40% of its trade with the US and is balanced by heavy industry, commodities and technology industries. While many of these sectors are hurt by the recession, it gives Brazil some added security in the long term within the global economy.

The news on recent increases in growth in China and India are positive, but with many consumers losing jobs recently and many smaller industries only failing in recent weeks, it is hard to predict a concrete economic demand for consumer products and link growth in China to the markets it depends on. In reality, many smaller and larger US firms often depended on cheap operating loans from US banks, and without not only financially stable banks, but banks willing to give out loans to investors, it is impossible to justify any prediction of growth in consumer spending when SME’s are neglected from economic recovery and are the last to receive financial aid in the economic crisis, yet provide the majority of jobs in many developed countries. Countries like Brazil and Canada should be considered a relatively strong option for investors, as historically and logically growth seems more likely for all levels of industry in few similar countries in the long run and the avoidance of economic bubbles have been relatively successful in the past.

An interesting piece I encourage you all to read:
Latin America and the Economic Crisis: Designing and Implementing Stimulus Policies
Mauricio Cárdenas, Director, Latin America Initiative
The Brooking Institution

June 25, 2009 —
Dani Rodrik recently wrote in his daily blog that Andrés Velasco is the living example that sound macroeconomic policies have a high dividend. Chile’s decisive fiscal stimulus package—adopted last January—has made him President Bachelet’s most popular minister. Not too long ago, during the years of high copper prices, many Chileans questioned their government’s economic management for saving too much and postponing key investments. Of course, those critics are silent now. Events are showing that a commitment to rules that focus on long run objectives, rather that immediate gratification, pays-off.

But rather than talking about Chile, I would like to make a more general point regarding Latin America. Today’s conventional wisdom –and I say this in complete awareness that ministers generally adhere to, and oftentimes shape, mainstream views—is that stimulus packages are working and that Latin America will soon be out of the recession. In Brazil, for example, most analysts consider that the contraction is a thing of the past. I want to take issue with those views.

Let me start by stating what, in my view, is the conventional wisdom:

The adoption of sound macroeconomic frameworks, mostly since the late 1990s, allowed Latin America to bring down inflation and public debt. Foreign reserves are high for historical standards, reflecting stronger current accounts and access to external capital. As a result, Latin America is coping with this crisis much better than a decade ago. In fact, there has been no crisis, just a mild recession.

Key to the current episode has been the ability to conduct countercyclical monetary and fiscal policies. In the current phase of the cycle, policy rates set by the central banks have been cut to 0.75% in Chile (a reduction of 7.5 percentage points), 4% in Peru, 4.5% in Colombia, 4.75% in Mexico, and 9.25% in Brazil.

Fiscal stimulus has also been the norm, although the size and composition of packages has also varied from country to country. The largest expansions have taken place in Chile (2.5% of GDP), Brazil, Peru, and Mexico.

Macro-financial variables have shown remarkable stability. In 2009, inflation has been falling, exchange rates have appreciated, stock prices have increased, and spreads on sovereign debt are falling.

Even though production and employment figures are still declining –and GDP growth projections are being revised downwards– virtually all forecasts suggest that the recovery will start soon. The latest Global Development Finance Report from the World Bank (the less optimistic of the existing “official” reports) projects major rebounds in all economies. The difference between the 2010 and the 2009 GDP growth forecasts is 5 percentage points for the world economy. The corresponding figure is 5.4 percentage points for the OECD countries, and 4.2 percentage points for Latin America. The expected rebound is spectacular for Mexico (7.5 percentage points).

I think this view errs on the side of optimism. Latin America should hope for the best but prepare for the worst. By not properly considering the risks ahead, governments have the temptation of exhausting the policy tools and not reserving any ammunition for battles that are foreseeable. My critique of the conventional wisdom is based on the following four points:

The numbers on real activity and aggregate demand conditions which are coming out from Latin America are not that encouraging

Although it is true that retail sales in Brazil increased 6.9% in April (relative to a year before), industrial production registered a 14.8% contraction in May. In Mexico, where GDP contracted by 8.2% in the first quarter, industrial production fell 13.2% in April, and consumer confidence continued to fall in May. The Chilean economic activity contracted 4.6% in April and industrial production fell by 11.1%. The figures for other countries show a similar picture: Latin American economies are experiencing a deep contraction, and the evidence does not suggest a significant recovery underway.

Of course, all this could change with a big rebound in the second semester. But, is that realistic? The contraction in investment has been in the double digits during the first months of this year for the majority of countries in the region, and will have an impact on future growth. More importantly, investor and consumer confidence measures are very low and still falling in the majority of Latin American countries. We know from past episodes that it takes time –and a good amount of positive economic news– to reverse the direction of these perceptions, especially the consumer’s sentiment.

Latin America is betting on the rebound of commodity prices

China’s real GDP growth slowed to 6.1% during the first quarter of this year. Although several measures of real activity and domestic demand have been improving lately (investment grew by 32.9% in five months to May), exports continue to deteriorate. Chinese exports contracted by 26.4% in May, suggesting that there is excess capacity. To the extent that exports do not recover, investment will loose momentum as well as commodity imports, which have increased for stockpiling purposes. These are very negative news because they suggest that the surge in commodity prices will not last. Why commodities moved ahead of the fundamentals is not clear, but Latin America should be prepared to deal with prices which are more in line with lower Chinese import demand in future months.

Private capital flows are shrinking at an alarming pace

The World Bank projects that net private debt and equity flows to developing countries will decline from 8.6% of global GDP in 2007 to 2.0% in 2009. This is much worse than in the debt crisis of the 1980s or the Asian and Russian crises combined. Many in Latin America argue that the region is somehow immune to this trend, mainly because of the role that foreign direct investment plays in the region. This could be true, but at the same time, the evidence available suggests that FDI flows depend largely on growth in the OECD countries. With the major contractions expected in the U.S., Europe and Japan, FDI flows will fall in the medium term. The latest IMF data suggests that this is already happening. The investment projects under way are likely to be completed, but starting new investments is a different game. The recent drop in the cross-border M&A activity is a strong signal in this direction.

For the emerging and developing countries as a whole, private debt and equity flows will likely fall short of meeting external financing needs. The question is how much of the shortfall will affect Latin America. Some countries are better prepared than others. Countries with large current account deficits, strong dependence on tourism and remittances, and limited access to private debt and equity flows will suffer considerably. This of course, points in the direction of Central America and the Caribbean, where a sharp adjustment seems inevitable.

In the largest countries, with access to international markets, much will depend on the ability of private firms to roll over their debt. There are hundreds of corporations in these countries that borrowed in the international syndicated loan market and some that issued international bonds during the last few years. They hold the majority of the outstanding short term external debt as well as the medium to long term obligations coming due in 2009. Financing the public sector is not the problem; the real issue is how to refinance the large Latin American corporations.

The prospects in this regard are not all that encouraging. The supply of credit to the region could fall even further because there are mounting pressures on the capital position of the major banks. Liquidity problems in the global interbank market remain an obstacle for banks to fund additional assets, while tightening of credit standards has been generalized. Last but not least, government ownership (even if temporary and partial) of the large banks changes the priorities in the direction of domestic recovery in the developed world, rather than greater credit risk exposure in emerging countries.

There is no ammunition left

The capacity of central banks to cut interest rates and of governments to provide more fiscal stimulus is very limited. Even in Chile, there is discussion that the fiscal deficit is already too high and that the government should bring it down again next year. The Mexican central bank has said that further cuts in interest rates are not likely, in line with the language other monetary authorities have used recently. In other words, fiscal and monetary policies do not have many degrees of freedom. If the world economy does not recover soon and private capital flows to Latin America remain low, there is not much that Latin American countries can do. Even worse, it is possible that some of the expansionary policies of the recent months will need to be reversed. This is already part of the debate in countries like Mexico, where the government may need a tax increase to cut the fiscal deficit in 2010.

In summary

In summary, Latin American governments and multilateral banks are betting excessively on a sharp economic recovery. For their projections to be right, a major recovery should be already underway. The latest figures, however, do not support that view. Even if the U.S. shows a moderate V- shaped recovery in the next two quarters, China’s imports, commodity prices, and private capital flows could still be the source of very unpleasant news for the region.