Latin America

Behind oil export and above tourism, remittances from Mexicans abroad to their home country makes up a large part of the cash that builds homes and futures in many Mexican communities. With the recent economic crisis in the US, America’s neighbours are starting to feel the fallout of the Mortgage Crisis that is slowly presenting problems in countries outside of the G8. With many Mexicans living in the US in hard hit areas, those funds that used to pay for medicine, food, homes and everything else for families of migrants from Mexico are now suddenly being cut off with great effect.

With a decline in remittances of 7% since last year, many in Mexico who were just keeping afloat may slip into poverty this year. Many small villages who sent their young men and women over the border and who often are mired in economic troubles are the hardest hit communities in Mexico when economic troubles loom. With remittances to Mexico increasing five and a half times since 1997 to $24 billion, these funds are not only a necessity, but is Mexico’s second largest source of foreign revenue. What also seems to focus the tension on Mexico is that areas in the US where Mexicans have migrated to are also those worst hit by the crisis. While migrants from El Salvador and Guatemala are also affected, those communities often have settled in the Washington-Maryland areas which have been less affected by the crisis according to The Washington Post.

The likely effect of the crisis outside the US may result in more illegal migration across the border. Despite the troubles in the US, communities in Mexico near poverty will not weather the lack of funds as easily as much of the United States. Economies tied in with the US will slowly feel the effects of economic troubles in their largest export market. The lack of sympathy for future trade agreements and harder policies on immigration will also likely take hold with the poor economy and continued anti-NAFTA and FTA sentiments in the US Congress. The next American President will have a lot of repair work when beginning his or her job in 2009.

I was happy to read a clever article called: Linking NAFTA and Immigration by Ted Lewis of the San Diego Tribune as he discusses the campaign issues and how they are being spun to effect the campaign and America’s neighbours in a negative fashion. Lewis suggests that reform in NAFTA and effects on the poorest in the three member states needs to be addressed in a logical fashion, and not via the lens of the complete benefit of free trade or lowbrow electioneering. Addressing poverty and its root causes of increased unemployment in Mexico needs to be addressed in any future NAFTA negotiation. Lewis states that much of the illegal immigration comes from a lack of economic progress in Mexico since the agreement began and has lead to massive amounts of immigration to the US. Lewis also mentions that the electioneering between Obama and Clinton creates arguments against free trade, and in my impression creates intentional dissent in the US against Canada and Mexico. While Obama was blamed for not being serious in changing NAFTA, Clinton has used this small scandal to re-ignite her campaign. Ironically, the alienation of friendly foreign governments was always something linked with Bush, but support for the next Clinton Presidency may rest on the backs of Canadians and Mexicans alike if it continues to hurt Obama.

With much of the support for the Clinton campaign coming from the blue collar democrats in the northern states and America’s traditional industrial heartland, it makes sense that Clinton would use Canada and Mexico to blame for poor US policy in the past, much of which came under her husband’s term in office. In reality, the Mexican economy has purged its traditional weaknesses since 1994 and has maintained a solidly valued Peso, growth in the long run and even produced a more equitable government with the PRI dominated Presidency toppling a few years after NAFTA came into effect. The reality is that Mexico is a developing nation in many ways and has problems which 10 years of trade policy could never resolve in its best performance. To end poverty and develop a country a generation is needed to end generations of poverty and inequality. Targeted anti-poverty policy is needed to help remove the 30% of Mexicans who live in poverty and have always lived in poverty. Economic progress in Mexico has created such negative results because the flow of money often reaches the poorest last. This is the trend in almost every country where poverty dominated the political agenda. No one has addressed this in the Obama camp, and with the Clinton campaign it seems that immigration and NAFTA come second to embarrassing Obama as much as possible.

While poverty and success in Mexico’s economy can always be debated, the main issue of concern is that anti-immigrant and anti-NAFTA effects of running a negative campaign. It seems apparent that even though NAFTA is a mixed blessing, the current concerns with China seems to be targeted towards America’s neighbours. While China has a right to progress economically and diversify its society as it wishes, Americans need to debate how they want to proceed with their neighbours and China in a logical, fair and respectful manner and choose where they wish to take America in the future. No country can live in a vacuum, but every country has the ability to take measured and fair responses to grow its own economy and produce trade and development to assist its own people, create a net benefit in jobs and reduce poverty.

In a response to one of the FPA’s blogs, a candidate for Congress in the US claimed the wholly negative effects of NAFTA and America as losing its sovereignty over NAFTA. I responded in kind in order to dispel myths which seek to create straw man arguments of America’s friends and neighbours. I encourage readers to read the responses to the blog and address their concerns in kind. All fair points of view are respected and I encourage open debate. The response is noted in the FPA’s Latin America Blog: Paranoia on the Frontier: NAFTA and the US Election

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In Mexico’s “Dirty War” between 1968 and 1971, more than 600 people were “disappeared” for their political convictions. While much progress has been made with disappeared people in Chile, Argentina and Uruguay since the 1970s and the fall of military dictatorships in those countries, there has not been the same level of attention on disappeared Mexicans within Mexico or the international community like there was with many countries in South America.

With the lack of a strong military government in Mexico and the nature of the intricate political system under the 80 years of PRI rule in the country, finding information about missing people in the process was only plausible after the loss of the PRI’s political hegemony in Mexico and the political will of the new PAN government over the last 7 years.

Jose Miguel Vivanco of Human Rights Watch in this link discusses the advances, or lack thereof, of the Special Prosecutor’s Office which was created under the Fox Administration to investigate the disappeared people during the 70’s in Mexico. Recently the office formally closed when the government published its agreement A/317/06 in the federal official newspaper. With the end of the investigation, not a single conviction was produced and only limited progress was made in uncovering the fate of hundreds of people who were “disappeared”.

In Argentina, Chile and Uruguay, while there have been many difficulties and conditions in prosecuting past disappearances and abuses, Vivanco suggests that: “Mexico must still find a way to meet its obligation to investigate and prosecute these cases.” While prosecutions have never been an easy task in any country, progression has come with new democratic governments in those countries most greatly affected by “disappeared” in the 1970s. With the election of another PAN government in Mexico, there must be some reconciliation in Mexico for the 600 missing people.

Rapid double digit economic growth in China and its newly minted membership in the WTO has greatly changed the world economy and China’s position as an economic and political power. This view, while prominent within China is more importantly the dominant view among its neighbors abroad. Much of the trade between China and economic powerhouses such as the US and EU have grown exponentially in the last 7 years, so much so that US debt is owed principally to China equaling a third of all US foreign debt and much of the US manufacturing base moving to China for low labour costs in the process.

Fears of losing American jobs have traditionally been the focus of political debate in the US due to the small economic boom in Mexico which formed after the Peso Crisis in the early 1990s. The move of many multinational companies to the southern side of Mexican border to manufacture products from A-Zto be reshipped back into the US at low labour costs has been the cause for much of the anguish of local US labour unions over the last 12 years of NAFTA. While low cost goods have come across the border to American consumers, it also provided much of the employment base for Mexican manufacturing in Mexico and was a strong engine for the Mexican economy throughout the 1990s until today.

With the emergence of China however as the principle manufacturer of the world’s goods in recent years and China’s emergence as the world’s largest economy in the next few years, Mexico has slowly realized that it is being replaced as the principle low cost manufacturer of goods to North America. The realization that Mexico may lose one of its principle engines of its economy to China has lead to more involved policy towards China. A push for a bilateral investment agreement took shape in March 2007 and will be worked out further this June. The hope for Mexico is that a bilateral investment agreement will take shape before the end of 2007 and help reinstall Mexico as a leading trade partner with China and the US. Further relations have taken shape as well, with the two main Unions in China and Mexico in a personnel and information exchange agreed to this month and future commercial deals taking shape as well.

It is uncertain where Mexico will be placed in the future economy, but as one of the leading nations regarding trade agreements abroad, Mexico will use any advantage it has to maintain recent success in the Mexican economy past its early NAFTA years.