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.

November 10th brought much attention to Brazil as a blackout in Rio de Janeiro and Sao Paulo shrouded Brazilians in darkness. The rest of the world on the other hand is starting to see Brazil in a new light as the BBC World Service reported the announcement of the first steps towards physically accessing massive oil reserves on Brazil’s coast. Brazil’s coastal reserves will possibly make it one of the largest oil fields to be developed globally in the last twenty years.

While signs of this oil find have been known since 2007, the positioning of Brazil as the third BRIC to become a significant economic power has become the focus of many economic success stories since the economic crisis began this time last year. The fifteen-minute blackout in Brazil’s two largest cities was nothing compared to the day long blackout of the Eastern US and Ontario Canada in 2003. While many weary Brazilian’s might see this as a sign of poor government control or a lack of proper infrastructure, the economic heart of the world has also blacked out for much longer periods of time and will remain strong despite electrical and economic issues in the past.

Brazil on the heels of the Olympic win might be able to claim a medal in the near future as the third BRIC to develop to its full economic potential. What is of more importance than being the third country of the four to grow into its own media hype, is the ability to stay in the running to become the most stable BRIC nation in the long run. Brazil is not a typical BRIC as its growth did not come about in the same fashion as Russia, India or China. Due to the resilience of its economy, diversity in its global position, and ever growing positive reputation outside of Brazil, the South American giant will likely become the next Super Economy.

Unlike the other BRIC nations, Brazil has grown to its current potential through a series of economic failures and lessons and has made diverse growth a part of its overall growth policy, in addition to a little luck. Politically, there have been many debates in the country and criticisms of policy and the new constitution since the 1990s, but the growth of the country from right of centre to left of centre governments have tried to maintain the same prudent growth strategy while addressing poverty reduction. Poverty reduction and community development combined with economic success has been a slow climb to bring Brazil into a position where its internal issues do not hinder its ability to position itself abroad.

In comparison to the other BRIC nations it must first be noted that the relation between the BRIC nations comes from some simple measures, mostly the physical and population size of the country, its relative economic weight, and political importance in its respective region. Success in these large developing economies could plausibly lead to another combination of four or more nations, which despite their size have little in common when considering growth and poverty reduction. Countries such as Mexico, Indonesia, Ukraine, Iran, Nigeria and Egypt could possibly become future BRICs, but have stronger similarities to a China or Brazil, Russia or India. In the future, the positive and negative growth trends of the original BRICs will likely become the typical measure for different developing countries that are large and emerging economically but have little in common with each other.

When referring to Brazil, it must be noted that its economic diversity and policies addressing poverty reduction outright is notably different than those growth policies in the other BRIC nations. Latin America only competes with Africa with regards to inequality between rich and poor, and this inequality is the historical and structural burden of every Latin American country and citizen. For this reason, when luck arrives in the form of a previously undiscovered oil field, the use of its revenues to grow the economy for the whole of society can be relatively balanced with equitable policy or the expectations of such revenues for Brazil as a whole. Structural problems in places like Nigeria or Iran simply turns its vast oil wealth into a source of wealth for few and is used as political leverage against its own citizens. Russia, one of the co-BRICs, also is a country with large amounts of oil and gas, but often it is used to leverage itself politically against its neighbours and maintain its own security position in the region. The lack of diversity in the Russian economy and its link to oil and gas as its main commodity might bring in a lot of economic successes in good times, but it can harm the Russian economy when oil or other commodities are hurt in poor times. Russia becomes a BRIC however as the potential of a diverse economy and a large population could make it into a large economic power as opposed to a significant country for solely security reasons and cultural influence. Brazil’s long term policies and diverse training and economy has been able to balance its resources with other economic leverages, oil simply supports the Brazilian economy, but is not the economy itself.

With regards to China and India, links to Europe and North America has played a large role in the rapid growth of both these economies. Chinese growth is completely linked with the US consumer and other Western consumers who purchase much of their lost cost items from factories in China. These factories sell directly to US and European companies who choose to move their manufacturing to China and delegate production to small manufacturing concerns in China. Quality and safety becomes an issue for many large multinationals as they can only monitor production by second hand means, and growth in China also becomes dependent on many workers with artificially low wages to grow the country. Legal measures and equality are limited for the sake of growth, and this medium term strategy may likely fail in the long term if wages do not rise or few Chinese are allowed to benefit in the long term. It is not to say that China’s growth is limited, but policy approaches to balance growth with benefits must be addressed to make China into what the pre-2008 media hype believes it to become.

India has tried to address policy concerns and poverty reduction to some degree and might become a more stable economy in the long term, due to its large labour force, basic legal development of employment concerns, and diversity of economic growth as seen in its diversity in production, services, and technological training. India also has strong ties to the UK traditionally and may become a source for UK wealth as the financial sector in the UK continues to finance and fund growth in India due to their close relationship. India’s influence economically is also strongly tied to security issues and concerns as its growth is challenged by China’s economy and Pakistan’s and Afghanistan’s internal security issues which often brings India into the debate.

Links between growth in India and China and its European and American counterparts is responsible for much of their rapid growth, and many of its challenges as well. Brazil’s economy has recently been linking to a greater degree with other BRIC nations, but has often has balanced links with the US, EU, Asia and the rest of the world. Links with the EU and US over the last 40 years often bounced between 25% to 40% of Brazil’s economy and maintained a diverse position economically. Focus on MERCOSUR and Latin America has given Brazil better leverage and has balanced its influence in the world economy. While the US has been slow to react to Brazil’s influence outside of Latin America, other nations in the Americas would do well to take advantage of Brazil’s emerging position. Countries like Canada that are diverse and share an economic position like Brazil as not being terminally damaged by the economic recession of 2008-2009 could benefit via ties with Brazil as Canada is based in the financial and resource industry. Canada could become Brazil’s key to financial opportunities worldwide if Wall Street is slow to create stronger ties with Brazil. While economic ties remain diverse, Brazil is becoming a source of political attraction for many who often have little links with Latin America. Recently competing envoys from Iran and Israel have been sent to Brazil due to its new position as a global power and have been welcomed as Brazil seeks to balance its relations between the US and Venezuela with their counterparts in the Middle East. China continues to seek partners in Latin America as the US loses its economic clout and discusses the future of “Buy America” with its nervous allies. Brazil and other Latin American economies have been creating fast paced economic ties over the last two years as the US decides whether or not to approach the Americas with an open hand.

Media impressions of Super Economies are often done via a lens of paranoia that the US, the EU or Western countries will become the underdeveloped nations of the future. The likely outcome is that the US and EU will remain as strong economies as they have links abroad and are large and influential and will remain so for a long time. BRICs nations often do not involve themselves in other regions beyond a trading relationship or the need for resources. Brazil is balanced economically and resource wise to maintain its influence in Latin America, yet not come in conflict with other BRICs or Western Economies. While the Eastern US may not become an economic blackout in the long run, trends and policy concerns should create strong ties among strong neighbours economically and create decisive and strong coalitions between current or future BRICs and Western powers if economic hubs will grow or remain at their current levels of importance. Brazil is likely not going to be limited by 15 minutes of fame or of darkness, but will grow slowly and surely over the next few years.

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.

The last few weeks in the Latin American world has been anything but calm. Coming off meeting of the G20 and Summit of the Americas, the region has moved towards many intended transformations in policy and relations with the US and the EU. Some of these major changes are discussed below.

Mexico: With a severely damaged economy, an epic drug war, corruption and now H1N1 Flu, Mexican President Felipe Calderon likely feels more like the recipient of biblical plagues as opposed to Mexico’s overworked president. Shutting down the largest city in the world for 5 days is no easy task, but with Mexico’s already suffering argo-business and tourism industries on the edge, an outbreak was the last thing Mexican business and the Mexican people needed at this time. The economic impact of the flu will be severe, and many will likely offer additional financial support to Calderon’s Mexico well after the hysteria of Swine Flu subsides. While the blame for the outbreak is being tossed between the WHO and Mexican officials, impressions of the unknown nature of the Mexican healthcare system is routinely being critcised by those outside of Mexico despite the extreme and sensible measures taken by Mexican officials in the process. Anti-Mexico feeling is likely not raised by a significant degree past the normal levels of criticism, but caution from areas such as Hong Kong; where SARS originated, and China, where Mexicans visiting and living in China were quarantined despite showing no signs of illness are not helping relations between the two countries. President Calderon even sent a plane to collect his citizens, in between public announcements that have brought a great deal of order to an otherwise chaotic Mexico City. For a detailed account of the Swine Flu, please read R G Wallace’s blogpost called The NAFTA Flu on his blog Farming Pathogens here.

Cuba: Cuba’s opening and dialogue with Barak Obama comes on the heels of the election campaign and numerous surveys’ showing the lack of support by many Americans for a trade embargo on Cuba. Writer Alvaro Vargas Llosa of the Washington Post Writers Group wrote an interesting piece on Cuba and Free Trade in last week’s The New Republic. Llosa, who initially supported America’s embargo on Cuba, discusses his reasoning and rationale with many detailed examples for pushing his opinion towards the other end of the spectrum. While he still maintains his support for freedoms of individuals to travel and communicate with whomever they wish, he argues how trade and the absence of financial growth may have actually contributed more to the maintenance of the Castro regime as opposed to helping grow grassroots opposition towards it. Llosa’s numerous examples of regimes who have decayed from within in comparison to Cuba is definitely something worth pondering, but without the ability to re-write history, and re-write Cuba, the only option is to move towards sensible policy in the future, whether that involves Free Trade with Cuba, an embargo or simply a slow and progressive opening of Cuba while pressing for human rights in the process. The Llosa article named Free Trade can be seen here.

Venezuela: Two impressive articles have come out recently speaking about the future of Chavez in Venezuela and its new relations with the United States. In another Washington Post Writers Group article called Regift, Please!, Llosa discusses the book given to Obama by Chavez called: Open Veins of Latin America by Eduardo Galeano. Llosa goes through the main thesis of the book and argues against the intellectual capacity of Chavez and seeks to disassemble the perspectives of the book published originally in the early 1970’s. The book argues that Latin America has always been an absolute victim of colonialisation and imperialism from Europe and the US respectively. In the context of the early 70’s, many of Galeano’s perspectives likely gained a lot of support throughout the decade and remains with many to this day. While growth in Latin America had come in some degree since that time, most of the region sought to ensure Import Substitute Industrialisation measures since the late 60’s well into the 1980’s and growth, while improving in times of economic boom, often ensured that the impoverished in the region were hit the hardest by economic collapses in the 1980s, 1990, post-2000, and even as we speak. Beyond growth and poverty, political issues between the US and various regimes in Latin America had great effects on the development of rights and freedoms in places like Chile, Central America and other specific cases where the CIA is claimed to be involved in the region. While Llosa is right to counteract the claims of Galeano in his book, the context of Latin America in the 1970s and its effect today did create many that might agree with Galeano to some degree, even if they are not supporters of Chavez. In recent works, Galeano perhaps tempered his arguments for a more modern Latin America, but ironically the funds coming in from sales of Open Veins likely made him wealthy in the process. Please place blog comments below. Llosa’s article can be read here.

Human Rights Watch and Chavez: I did write about these issues in the past, and Jose Miguel Vivanco of HRW, who was ejected from Venezuela for a report on Chavez could not state in better than in his article: Exposing a Chavez Charade. I wish that Vivanco’s words make a strong statement on rights in Venezuela, so I have posted a link to it here, and have pasted it below for all to read. Please leave your feedback on all articles and a response to your impressions Human Rights Watch has on Chavez’s Venezuela:

Exposing A Chávez Charade
by
José Miguel Vivanco
Published in the Washington Post
May 2, 2009

Published in the Washington Post José Miguel Vivanco, director of the Americas division

(Mexico City) - President Obama came under fire last month for sharing a smile with Venezuelan President Hugo Chávez at the Summit of the Americas. Critics say that Obama was wrong to be friendly with a foreign leader renowned for his anti-U.S. antics and authoritarian tendencies. It might be expected, because I am a human rights advocate who has documented Chávez’s authoritarian policies and suffered the consequences at the hands of his security forces, that I would share this criticism. But I think time may show that Obama did the right thing.

Already, Obama’s overture has made it more difficult for Chávez to use his personal feud with the U.S. government to divert attention from his country’s problems. It will also be easier for the Obama administration to pursue a serious multilateral effort to pressure the Venezuelan government to reverse its authoritarian approach.

Venezuela is a complicated country. To its credit, it has competitive elections and independent political parties, media outlets, labor unions and civil society organizations. While Venezuela is plagued by chronic human rights problems such as police killings and deplorable prison conditions, there is no systematic denial of fundamental freedoms, as in Cuba. Nor is there an armed conflict with widespread violence by illegal armed groups, as in Colombia.

Yet the Chávez government has actively undermined democratic institutions that are essential for safeguarding the rule of law. It has strengthened the state’s power to curb media freedoms while abusing its regulatory power to threaten and punish critical media outlets. It has systematically violated workers’ basic right to freedom of association and sought to undermine the work of local human rights advocates.

Perhaps most troubling, the Chávez government has effectively neutralized the judiciary as an independent branch of government. This disregard for judicial independence has only fed fears that a recent wave of corruption charges against prominent Chávez opponents — including the opposition’s most recent presidential candidate, Manuel Rosales — could be a campaign of political persecution orchestrated by the government. While the Venezuelan justice system should be prosecuting corruption, it needs an independent judiciary for such prosecutions to be fair and credible.

To deflect criticism of his authoritarian policies, Chávez has relied heavily on a tactic favored by his friend and mentor Fidel Castro: routinely accusing human rights advocates of conspiring with the United States to topple his government. When, for example, the highly respected Venezuelan nongovernmental organization PROVEA issued its annual report on human rights in December, Chávez’s interior and justice minister declared on national television that the PROVEA workers were “liars” who were “paid in dollars.”

In my own case, after Human Rights Watch released a report in Caracas last fall, a colleague and I were forcibly detained in our hotel by Chávez’s security forces and summarily expelled from the country.

How did they justify this abuse of power? By claiming, falsely, that we had violated our visa requirements and were conspiring with the U.S. State Department to undermine the government.

No one familiar with our work, or that of PROVEA, takes these absurd allegations seriously. Yet such allegations resonate with some audiences in Venezuela and elsewhere in the region, ultimately serving to undermine discussion of the country’s human rights problems.

Indeed, the reason such allegations have any resonance is that the U.S. government does have a long and sordid history of conspiring to topple democratic governments in the region. And when Chávez’s opponents sought to oust him in a coup d’etat in 2002, the Bush administration initially welcomed their effort rather than joining in the near-universal chorus of condemnations from democratic governments in the region. This blunder badly damaged the Bush administration’s credibility in the region on issues of human rights and democracy. It also made it much easier for Chávez to cast debates over his policies as merely part of a political and personal contest between President Bush and himself.

Obama took an important step toward ending this dynamic when he extended his hand to Chávez in front of the cameras. He took an even more important step when he acknowledged the “historic suspicions” of U.S. intervention in the region.

That said, a smile and handshake from Barack Obama won’t solve Venezuela’s human rights issues or U.S. problems with Venezuela. And it would be a mistake to pursue a better relationship with Chávez for its own sake, or out of fear that otherwise he will fall under the sway of countries such as Iran, or because Venezuela has oil — as Hillary Clinton suggested in a recent congressional hearing.

Lowering the drama between the United States and Venezuela is worthwhile because it creates an opportunity to focus the region’s attention on developments in Venezuela. In the coming months, the administration must seize that opportunity by expressing concern about policies of the Chávez government that have undermined the independence of Venezuela’s democratic institutions. The United States should also work with regional allies to establish an appropriate multilateral forum — at the Organization of American States or elsewhere — to engage Venezuela on this issue.

Obama’s symbolic gestures were essential to setting the stage for such meaningful engagement. If his administration follows through as it should, the next time Chávez tries to label all human rights criticism as a U.S. conspiracy, few people in the region will take him seriously.

This weekend leaders from across the Americas have made their way to Trinidad and Tobago for the fifth meeting of the Summit of the Americas to discuss the future relations between nations in North and South America, the Caribbean and between others interest groups in the region. The Summit is often the centerpiece for inter-governmental discussions and policy formations between nations in the region. The last few Summits have been dominated by the formation of multilateral and bilateral trade discussions, albeit with slowly dwindling support for the FTAA since the Quebec City Summit in 2001, the Summit of the Americas has moved away from discussions of a multilateral agreements into the shiny and new 2009 Summit which seeks to patch up open ended policy debates in the region, address security issues and produce some form of future dialogue between the US and states which formally have had rough relations with the Americans in the past. The best evidence of this new Summit approach is the move by the Obama administration to open a dialogue with Fidel and Raul Castro which has been reciprocated this week, make open discussions of how the US and Mexico can claim their part in the drug war, create and new open-hand diplomacy towards Venezuela and Bolivia and have increased trade with traditional allies in the hemisphere. Below I will discuss the possibility of some future developments between the US, its neighbours in the hemisphere and relations between other members and internal struggles within some countries in the Americas.

This week saw an attempt on the life of Bolivian President Evo Morales. I was able to see a live discussion with President Morales via webfeed on the Summit Website earlier on Saturday which was quite impressive and needed to be noted. Bolivia has gone through a great deal of policy changes with Morales. As one of the first indigenous leaders in Latin America, Morales has shifted much of his policy into poverty reduction strategies and through popular support, and adjustment in the power structure in his country. With a recent protest to withhold eating until anti-poverty measures and land reform issues were passed through into policy by the Bolivian Parliament and a very recent attempt on his life, there is no doubt of his commitment to changing Bolivia. Support for Morales will likely remain due to his popularly with many poorer indigenous communities that give him a large support base politically. A possible opening of relations with Bolivia’s allies in Venezuela and Cuba with the United States may change the situation greatly. In most cases Morales will be there until he is unable to satisfy the popular elements in society or so greatly alienates what he refers to as the oligarchs in society that he is unable to withdraw from protests. Bolivia will likely follow the natural course of populists in the region, albeit hopefully without violence becoming an end result.

A possibly historic move by President Obama during the Summit might be a sign of thawing relations, as Barak Obama made his way to shake the hand of Hugo Chavez in an act of good will. While Chavez was criticized in US media recently for claiming that Obama needed to study up on Latin America, Obama’s active move towards open-hand diplomacy was met by a friendly response. Obama was even given a book about the history of Latin America by Chavez, but in maintaining his position Chavez handed Obama a book which some call an academic work which compiles a drastic account of state-to-state oppression by the US in Latin America. Despite slight posturing, an opening of a dialogue has already resulted in Venezuela re-instating its Ambassador to Washington and might result in some added passive economic ties between Venezuela and the US that builds on already existing trade in many markets between the two nations. The larger effect of Obama’s move to open dialogue further with Chavez likely comes from his very open and quick moves to re-initiate ties with Cuba. Although Cuba was ejected from the OAS in the early 1960s, thus did not have a formal representative at the Summit, Obama made it clear that a lifting of the travel restrictions on Cuba would be a priority as well as talks with Cuba’s leading family which were accepted by Castro before the Summit commenced. A discussion of this further by FPA’s Great Decisions program can be seen on a video titled The Latin American Left. Click here to see the video link.

Before the Summit, Obama went to Mexico to show his support for and claim some responsibility for the drug war now taking place in Mexico. Many in the US and Mexico believe that in order to conquer the drug cartels in Mexico itself, a concerted effort must be coordinated between the source of the narcotics in Mexico, and the source of weapons and main market for drugs in the US, and even the market in Canada where Canada’s Olympic city has been enveloped by a mini-drug war itself. In addition, Obama’s stop in Mexico City before the Summit brought Mexico into a similar light with the issues surrounding Cuba. The United States closest Latin American neighbors for the first time in two generations are finally being properly re-engaged, which sends a message to the rest of the region and creates a new energy for the Summit that shows the US as an open-hand to discussions in the region after many years of neglecting US-Latin American Relations. In his speeches, Obama sought to claim responsibility for US actions in the region in an attempt to clean old wounds between neighbours. He also stated that despite US actions in the region, it also must not become a scapegoat for all problems in the Americas. To see an article and video by the FPA writer Marco Vicenzino on Obama and Latin America, please click here.

The US policy towards Latin America has often been linked to free trade, and while the issues of trade and protectionism might not have been in the spotlight this weekend, America’s closest allies in the Americas have not forgotten the importance of this relationship. Economic powerhouses in the Americas such as Argentina and Brazil have been battling through the latest economic crisis but seek to open further trade ties with the US and other investors. China’s role in investment in Argentina and Brazil and other Latin American markets have started to rival those coming from the US, World Bank, IMF and IADB in levels of investment, albeit with more favorable lending conditions. Canada, the United States’ largest trading partner in the region sought to assist the US in opening relations with Cuba, to which Canada has always maintained, but hoped to keep the issue of trade protectionism in the focus of the Summit leaders as both developed and developing nations in the Americas would be greatly hurt if trade was sacrificed in the process of reinvigorating the economy in the Americas. A $4 billion cash infusion was also promised by Canada to the IADB during the Summit and moves towards a CARICOM-Canada FTA. An opening between the US and Cuba was seen as a positive for Canada as well, as support for trade between all three countries is seen as a benefit from US investment.

The greatest concern for many worried about trade protectionism in the melee of new policies and ideas at the Summit is what to do about trade and countries such as Colombia, who is the United States’ strongest ally in South America, but is being battered by interest groups in the US and opposition in Canada for the extension of Free Trade between the US, Canada and Colombia due to human rights abuses against labour leaders in Colombia. Opposition to a Colombian FTA is so great that it is doubtful that a minority government in Canada will be able to ratify it, and despite the US having strong trade ties with China and an opening with Cuba who also have numerous human rights violations, a Colombian FTA has been placed in a holding pattern of policy formation in the US Congress. Perspective must be taken into serious consideration, as the US often cannot justify trading with some partners, and penalizing others such as Cuba for human rights offences. Colombia is a success story against the drug war in the Americas, and opening a stronger economy between Colombia and North America, while pressuring for increased human rights in the process is the only way the United States and re-establishes itself in its own backyard. This statement justifying an opening of relations with Cuba cannot stop at Cuba and the US trade relationship with China.

At the end of the 5th Summit of the Americas, success will only come with a strong arm extending towards an open-hand of diplomacy in the Americas. Obama’s policy towards countries with human rights abuses must be measured and moral in its development of relations that benefit the US and the Americas as a whole.

Click here to see the Reuters Video of Chavez Meeting Obama

Click here to see the Reuters Video of Obama on New Ties with Cuba

This week’s New York Times published a fascinating article about a topic that many experts on Latin America should find very intriguing. The article titled Deals Help China Expand Sway in Latin America by writers Romero and Barrionuevo was an analysis of China’s growing influence in Latin America, with examples of how Chinese liquid investment in many large projects in the Southern Cone and Andean region seek to take American influence via multilateral organisations and FDI and divide the regions investment among the US, EU, China and the rest of Asia.

Since the admitting of China to the WTO and the drastic change in global trade and manufacturing flows, China has become a benefit to some in Latin America and less of a benefit to others. The New York Times article goes into many examples of how Chinese FDI seeks to fund many large projects in the region, from a development fund in Venezuela, to a hydroelectric project in Ecuador and providing Argentina $10 billion in financial loans and Brazil’s national oil company a similar amount to ensure future projects will send a guaranteed percentage of future oil to China. Relations between the US and many of its southern neighbours often have been strained politically in places like Venezuela and Bolivia, or have been tied in with economic restrictions such as Argentina’s relationship with many international financial institutions which set high risks for investment in the country, often funded and controlled by US investment policy within those institutions. For some in Latin America, Chinese investment is not only a good alternative, but can equal the amount invested by the IMF, World Bank and the US itself as noted in the article.

Concern from American officials will likely become greater as China seeks to displace any US and European FDI and by-pass conditions set by many international institutions that often placed Latin American and other developing countries into a position of forced policy measures. Chinese investment, most notably in Sudan and other parts of Africa, Latin America and Asia are starting to become an alternative source of funds for many countries which prefer to receive investment, but do not want conditions on their local policies, namely those which affect human rights and those connected to poverty reduction strategies. A benefit to a country like Argentina, who’s loan defaults in the past has placed it in a position where poor investment ratings still linger from 8 years ago, have received Chinese investment without major sacrifices at this point. However, places like Sudan, who are responsible for one of the largest ignored genocides since Rwanda receive not only Chinese investment in developing their oil industry, but are also suspected of receiving arms which some have connected to human rights violations in Darfur. Investment without any restrictions or a moral compass was not always practised by those in the West; especially during the colonial period, but the international investment community must decide how investment should be dealt with in the future to avoid mass slaughter of innocent communities, whether it be Chinese FDI or from the West.

Investment in Latin America has often been seen in a different light, depending on the attention Latin America has been paid during various American administrations. The Summit of the Americas this weekend comes on the heels of one of those moments in history where Latin America is becoming re-engaged, at least for the first few months of the Obama Presidency until there are added problems in the Middle East once again. The issue often seems not only one of Economics vs. Security, but one of the Americas being seen as one complete investment block/FTAA vs. a source of illegal immigration and narcotics. Often this debate plays out using clear statements of interest, referring to Latin America as a region described as America’s backyard as opposed to statements linking narcotics, illegal immigration and terrorism in much of US media on Latin America. A debate on US policy always accompanies the region, wavering as Latin America fades in and out of their sphere of influence with attention due accordingly. This challenge does have a distinct element however in 2009, as Mexico continues to fight a full scale drug war and continues its very close economic ties to the US, and Cuba and the US opening dialogue between Raul and Fidel Castro and the Obama administration. These issues may keep the US tied to regional policy until those issues lose interest, as has always been the case. Luckily some policies linked with security and partnership often pay off, as Colombians have seen in 2008-2009 and some successes with Plan Colombia and in Mexico with the Merida Initiative, not always a media attention grabber, but long term policy nonetheless.

Likely future Chinese investment may re-ignite the debate on trade with Latin America if it is seen as a major threat. The US must decide in the end where it wishes to develop its trade policy as those in the Americas seek to promote their own investments abroad if the US does not wish to pursue major investment and trade in the Americas. Debates on NAFTA and trade agreements with countries like Colombia must be taken as policies which benefit not only the United States, but the Americas region as a whole. In reality, trade between those countries in South America had on average less than 40% of their trade with the US and a significant amount with the EU and Asia. China has now displaced the EU as the second largest investor. Countries such as Canada, America’s closest trading partner has signed trade agreements beyond NAFTA, with Chile, Costa Rica and are discussing an FTA with Colombia and even the EU. According to writers such as Khanna and Zakaria, the US must consider its role in the Americas as its leader and develop its interests beyond security in the region if it is to maintain investment in a strong United States. China as a matter of investment policy is often not competing in places where the US have established strong investment ties, but in those areas where the US have been absent. The next decade of American policy towards the Americas will likely been discovered in the Summit of the Americas this weekend, determining the viability of a Fortress Americas in future US investment policy.

With the recent anarchy in the global economic system and Macroeconomics textbooks being reedited worldwide, many experts in the field have gone silent or have admitted their inability to predict the latest collapse and inability to give a definitive answer to the problem. In the midst of this chaos, the traditional debate of American foreign policy is taking place, whether to open trade and whither protectionism in order to increase ties among the US and its allies, or whether to close all trade ties, appoint protectionist leaders into the new Administration and hope that countries which have less than reputable human rights records will not recall their loans in an attempt to soften their own economic issues at home. At the heart of the debate is whether the US, the pioneer of open trade in the Americas, should take Colombia as a free trade partner in the future.

With the announcement today of Canada and Colombia signing a free trade deal, the onus of the debate between trade vs. human rights has fallen on the US to determine in this latest round of trade deals with its strongest ally in Latin America. Colombia is an interesting case study indeed. Just a few shorts months ago the Colombian government was able to seriously assault its local terrorist threat, the FARC, with the capture and killing of many of the FARC's top leaders, the rescue of Ingrid Betancourt, and even were able to deal with threats from Chavez and arrange a cold peace and a handshake in the aftermath, all tasks which were unachievable by any of the partners of the War on Terror since 2000. Despite these achievements by the Colombian government, charges against them regarding assaults, arrests and disappearances of labour leaders in Colombia have become a catalyst for opposition in the US towards a US-Colombia Free Trade Agreement. Despite close ties between the two countries, the prevalence of trade between the US and many countries which on equal terms would be considered less democratic and human rights oriented, and the need for the US to reassure its allies of America's distain for protectionism after making it a major campaign issue and a top priority in industry bailout measures at home have become simply forgotten as recent history. The result of the New Economic Order is that Colombia's inauguration as one of America's number one partners has been abruptly forgotten and met with neglect. Many see the trade agreement as a continuation of policies leading towards a Free Trade Agreement of the Americas which has been permanently on hold and a reward to Colombia for beating back terrorist threats in its war against the FARC. Moderate supporters of the trade agreement see open trade as a means to supplement Colombia's illegal exports with legal commodities and give the majority of the country's rural poor an income to rely on that is not connected with the drug trade. Development activities in the past have seen some success with this open trade strategy, giving Colombia the tools to fight the drug trade through economics and bring down trade barriers from the US and even the EU and open agricultural markets abroad to its products. In the end however none of these issues are important, as Colombia has become an experiment in how to judge economic policy in the futurepoor timing indeed!

Among the traditional trade debate, looming issues regarding the financial collapse on the world markets has not merely changed the rules of the game, but has made confident policymaking a thing of the past in many circles. As a reaction to the economic collapse, the traditional closing off of America in times of global war and crisis often leads policymakers to remove America from the rest of the world, push through regrettable policy initiatives without needed moments of clarity and mortgage the future relationships of the US with its allies in order to avoid dealing with issue, which this time around started and will end with the US. The Colombian trade agreement is the first test of America's ability to form a future with allies who rise and fall with the US and its actions, or the beginning of America's fall from hegemony if it chooses to neglect Colombia, and its future allies in the name of temporary comfort in a future which it has gambled away in the short 60 year timespan of the American Empire. Choices in the next few months will determine whether the Americas and the rest of the world will continue into a new century with America as a key player, or return us to a world which looks more like the early 20th century, only with slightly different actors and millions more Japanese cars. Elections and economic crisis come and go, but rhetoric during times of trouble never allow the future to forget poor decisions of the past.

There are a few realities that have hit the world this past year and this past month, to which most of the world has been affected by to some degree. Luckily enough, the issues which affect most Americans have made the greatest impact in the last few weeks of the election campaign, and the decisions people will make when casting their vote will be based on how they wish to change the past, and how they wish to see themselves in the future. Both candidates have accomplished something remarkable. The last two election campaigns offered many a lack of choice in a candidate who they felt would really push the country in a proper direction. Eight years of George Bush, Iraq and Afghanistan, the Economic Meltdown, 9/11 and Hurricane Katrina, have left only candidates who can do the job available to be elected. Both Obama and McCain are good people, and either one is capable of placing their efforts into repairing a slightly damaged, well used and still well running America with a lot of work. Americans can do little wrong in choosing either candidate, but with the election close by and Obama likely to win, the following is a letter to Mr. Obama, and with some luck, Mr. McCain from the rest of the world who does not have a vote, but will be affected by their decisions as much as any American.

To start, the neighbours of the United States should be acknowledged for their constant support and connection to the United States. Canada and Mexico, despite issues of trade and immigration have done much in the last few years to accommodate not just Mr. Bush, but Americans as a whole. Currently Canada is one of the only developed nations who did not face complete economic collapse and places over 90% of their trade with the US. It should be acknowledged that trade and manufacturing in Canada has been hit as hard as in the US, and while NAFTA is blamed on Canada and Mexico, Canada is losing the same jobs, the same companies and the same households to tough foreign competition as much as the US. Canada is one of the world's largest oil producers and has always worked to move US energy out of the Middle East and grow stronger ties with Canada's energy and Canada's economy. Jobs being lost in the US, means jobs are lost in Canada as well. When the loss of jobs is blamed on NAFTA, it focuses energy and time on those who were never to blame for the economic problems in the US. To fight Canada and Mexico is to create scapegoats and lose four more years in improving the economy for all of North America.

With soldiers dying in Iraq, and allied soldiers giving their lives in support of freedom and lives in their own countries as well as the US, Afghanistan and Iraq need to be taken as a whole and the support should be given by the US to help fix problems abroad. According to Southern Pulse in their Oct 28th newsletter, over 4,000 people have died in Mexico's drug war, with 1,000 being killed in the last 50 days. Canadian, French, British and other allied troops have been taking heavy casualties in Afghanistan, making the region into a stalemate over the last 6 years. The worst problems have yet to be approached, with Darfur and Africa having yet to receive tangible attention towards genocides in the region which mirrors Rwanda in magnitude and action from the international community. Security in the United States cannot be achieved when those who support the US are under constant pressure and attack. Mexico has had as many deaths in the last year in battling the drug lords as soldiers have died in Iraq since 2003. A serious attempt in Afghanistan and a creative approach to Iraq must be achieved soon so other regions do not fall into chaos.

Immigration, while being solidified as a failed policy must start to acknowledge the existence of many from Latin America and Asia as players in the social framework, even if the legality of many residents are non-existent, they still are a part of every community in the United States. While illegal immigration needs a cathartic debate in America, those who have suffered from action, namely 2 million Iraqi refugees need to be addressed as well and accepted as people who are running from an Iraq which the US has not been able to claim victory and peace over. No greater respect to US soldiers and Iraqi citizens would come from a realistic approach that helps Americans, soldiers and their families, but also those so many fought hard to save; the Iraqis themselves. The use of the word "Change" and "Pull Out" will not stop violence and death in Iraq, only proper leadership will help end the conflict.

With a world depending on the US economy to operate, those nations in Latin America and Europe need a strong United States that will work and support their nations as those nations wish to work and support the US itself. While there is much criticism coming out of socialist governments in Latin America, the majority of nations who have spent the last few years in cooperation with the US and achieving great stability and peace within their own borders should be supported by the US and credit given to their development. Bad policy has created a situation where Chavez can attack Bush, as failure in leadership creates a large scapegoat, but good leadership with focus the attention on those local leaders like Chavez and allow for those democracies to eject problems in their societies. While not to the same degree, America's European partners have actually moved to re-engage with the US in a discussion to not only repair the current economic troubles, but also to re-invigorate the relationship of values and equality that should have always existed between Europe and the US. Elected leaders in the EU, Canada and Mexico have moved towards policies which have been considered traditionally American, and America will move towards a position where it adopts some trends from its partners, as well as hopefully cultivating respect with Europe and Latin America in the process. The future of the US will come with the future of Europe and the Americas. Leadership will only allow for a successful relationship in the future.

Emerging economies must be addressed to end this letter. China, India and Russia, as well as other nations have achieved a great deal of development, and with recent funds have been able to address national problems of poverty and development, many thought were impossible to tackle only 5 years ago. These countries have a right to compete and gain wealth, but if companies from the US and EU seek to find fortune in those countries and work with local companies which may produce harmful products or take away American jobs, than those American and European companies should be challenged and blame should not be placed on Canada or Mexico, who have lost much as well, and irrational barriers should not be placed on developing economies because companies from the US and EU take advantage of their consumers. To create scapegoats in this debate, is to create a situation where no one can foresee economic troubles, and regulation is left to create blameless policymakers in its wake. The crisis of the last 20 years was always not one of tangible losses, but in confidence, that companies and the government might and have lied to you, and that anarchy is unavoidable when problems ignite. Trade, finance and economics needs to work in society, as a parallel to democracy, in order to allow a leader to create any "Change" that is needed. The world needs a US presence, one with clear foresight and the ability to stop alienating its friends and address real threats to everyone's security. Only an understanding of the world who cannot vote will allow for any positive change to take place. A failure is no longer an option for America and their friends.

In the last two weeks while markets tumbled, the amount of information about common issues such as poverty, the food crisis and even the economies of otherwise notable countries have also dwindled as American candidates preach of change and the rest of the world deals with economic aftershock. While Europe and the US slowly absorb their financial industries into the public purse, other middle countries and emerging economies deal with the problems and try to seek out the positive aspects of the world's financial capitals plunging into chaos.

Not all countries, even developed ones, are in the same position as their European and American counterparts. In an IMF report published in the second week of October, countries such as Sweden, Australia and Canada were credited with having very stable banking systems with well regulated capitalization requirements and having sturdy foundations to best weather the latest economic storm. Canada stood out as one of the best, influencing their own election for Prime Minister and allowing the fiscally prudent Conservative Party to absorb many opposition party seats despite having a campaign during the financial crisis that is often blamed on incumbent government policy. Since the start of the Canadian election, the Canadian Dollar plunged from 97 cents US to 79 cents US as commodity stocks lost value. With over 87% of Canada's trade going to the commodity hungry US, Canada has taken steps to keep the liquidity in their financial system and even had talks with President Sarkozy of France before his left the meetings of the Francophone to begin talks for a free trade agreement between the EU and Canada. Despite economic turndown and the drop in Canada's currency against the US, trade will likely finally open up to the EU and Latin America in order to keep relatively cash rich Canadian companies in the mindset of investing their "non-losses" into economies overseas. Activities between the EU and the US played out in the same narrative last week as Sarkozy's mission to save capitalism and create a new global economic order, a Bretton Woods II, lead him into talks with Bush in the US to coordinate a common response to the failing markets. Sarko's proactive approach even reached into France's cultural policy, by planning trade talks with Canada while trying to bring ties between Canada's English speaking and French speaking communities closer and maintain stability in the only G8 country which has not plunged into chaos. Stability in some form in the developed world is what the EU and US need, even if not inside those economies themselves. It is likely that while traditional blue chip investments will not maintain their blue chips forever, it is possible that places like Canada and emerging economies may take some benefits with the losses in the global economy.

With so little information about emerging economies coming out of mainstream media in the last two weeks, some interesting dynamics have been playing out in the process. While not a complete paradigm shift, some investment chatter has been moving towards placing money in China and India due to the recent cash rich position of those economies despite recent losses there as well. While today there was a talk of a financial rescue package between China, Japan and South Korean with its ASEAN partners, relatively China is not the worst off in Asia. While the Chinese and Indian economies are highly dependent on the purchase of consumer goods in the US and EU, cash which has been acquired in their recent economic booms will enable cash rich companies in those emerging markets to purchase shares in many failing companies in the EU and US and might place Chinese and Indian companies in a position to not just be on the production end of product development, but also purchase the ability to vertically integrate their industries by way of relatively cash rich Chinese and Indian investors. This new position does not wholly account for the fact that China and Japan own a good size of US debt, and while Tokyo's Nikkei is feeling the crush of the crisis, the 1/3 of US debt owned by China will only spur emerging markets into a relatively better position despite current losses in China and India as a whole. Even the Middle East is feeling some benefits, as the rise in 2007-2008 oil prices have left many producing countries with money to burn despite recent falling oil prices this month. This will be remedied as well as OPEC will be meeting this week and after to curb the fall in global oil prices and maintain oil at the relatively high level despite the losses in the US and EU and falling demand for their products. In the end, Dubai might replace London and New York to become the place to go for the best and brightest coming out of Oxbridge, Yale and Harvard.

An interesting dynamic has also been created in a region, which has veteran experience in dealing with economic crisis. Latin America has always suffered in the past 30 years since the last oil boom and recession in the 1970s due to poor economic policies, schizophrenic investor confidence and pure bad luck. Only recently have countries like Brazil, Venezuela, Argentina and Mexico been able to weather an economic collapse and pay back their past debts. Initially, the realization that the economic storm has finally come from the US and not from their own economic crisis was not being played down to any degree by Latin American leaders. Initially the strong Brazilian and Venezuelan economies lead leaders in those countries to direct concern about the US collapse away from South American markets. While not commonly known, trade between many countries in South America is often less than 40% with the US. While Canada and Mexico have taken measures to re-capitalise with over 85% of their trade being conducted with the US, South American countries believed their trade position, balanced economies, and well earned savings would allow them to be passed over in the latest crisis. With the collapse of the EU and Asian markets, Latin America followed with a 12 percent drop in the Brazilian exchange Bovespa and the biggest drop in Mexico's Bolsa since 2000. Despite this, IMF predictions of growth in the region in 2009 made in April of this year only shifted down slightly from 4.4% to private investor predictions of a growth rate of 3.5% for Latin America as a whole. With many investors putting their funds into the US Dollar for safety reasons, the paradigm shift, that other economies might be seen as safe investments beyond New York, Tokyo, London and Paris might buoy investor confidence in emerging economies and relatively cash rich nations in order to diversify their funds further as investment risks grow at home to the benefit of stable markets abroad. While not all emerging economies will benefit, as in those like Mexico and Russia which have been hit hard despite keeping afloat and massive recapitalisations, markets such as Brazil, India and China might be able to increase confidence in their economies in the long run and balance many diversified portfolios if economic management and legal protections can be ensured in the next few years. While the paradigm shift has not yet occurred, it is evident that a change in the global economy that was going to take another generation has perhaps emerged in the last month. With losses come opportunities, and with nervous investors and bad policies at every turn, only intelligence, patience and luck will determine if change will occur and create a new economic order.