Latin America

NAFTA was always something that created tension between the US, Canada and Mexico in areas of debate that were never an issue before the concept of free trade became an ethos of foreign policy. NAFTA, originally built on from the Canadian-American Free Trade Agreement (CAFTA), was a progression of the US-Canada Auto Pact which set to reduce barriers to trade in the auto sector, expanding through CAFTA to include other consumer good and into NAFTA, to integrate Mexico into a North America wide trade agreement. The benefits and costs never were ultimately weighted to one side or the other. Canada would benefit from a secured auto market and less restrictions in selling its good to the US, now numbering around 92% of Canada’s exports abroad. Mexico would benefit from becoming a base for manufacturing goods to sell into the US and Canada and allow for employment in their own country in an attempt to curb poverty and increase much needed investment into the Mexican economy. Both would benefit from having a NAFTA Tribunal which would allow for judgments in a binding forum which would assist the two countries in registering just disputes with its massive neighbour, the United States. In turn, US companies would be able to access those markets and allow for US multinationals to set up investments and cross border trade within their own organizations as well as with other companies. US exports to Canada and Mexico since 1994 has made these two countries two of the top importers of American goods. With a population of 32 million and 100 million respectively, Canada and Mexico rival some of the largest markets in the world for US exports. It is hard to measure the true benefit of NAFTA for each country, but with the stability of the modern Mexican economy, the great effect of US companies on the Canadian and Mexican economies and the ability for the US to have two of the world’s largest economies within its economic and political influence, NAFTA was seen as a success by many policymakers in all three countries.

Recently NAFTA has been attacked by Hillary Clinton and to a lesser extent Barak Obama in their bloody and senseless campaigning towards degrading the Democratic Party. With the support for Hillary Clinton coming from many blue collar workers in Ohio, Pennsylvania and other manufacturing regions in the US; NAFTA, Mexico and immigration has become the keys to winning seats over Mr. Obama and his calls for Change. Damage has not only been inflicted on the Democrats, but on America’s neighbours. Countries like Canada and Mexico who have given a lot of support to the US, despite the poor impression of Mr. Bush in both countries, have been fairly good neighbours with the US in the last few years. Canada alone has born the brunt of much of the conflict in Afghanistan since Al Qaeda resumed its offensive two years ago, with most US forces stuck in Iraq. Mexico has opened its oil and petroleum industry towards the US, bringing closer economic ties despite the move by many American companies to China and away from Mexico. Mexico even has taken great steps to alienate Cuba, once a friend of the island nation, now in a cold peace with the Communist nation. The costs and benefits of NAFTA were summed up recently in the North America Leaders Summit in New Orleans where Mr. Bush, Stephen Harper of Canada and Felipe Calderon of Mexico met to discuss the future of North America.

The first volley of issues came as a response to Clinton’s campaign strategy to re-negotiate or scrap NAFTA. The North American Competitiveness Council, a group of 30 business leaders issued a statement promoting NAFTA and its increase since 1994 to creating trade amounting to over a trillion dollars. They also commented of how recent protectionist dialogue would do little to improve the relationship between the countries. Much of the losses of recent employment has come from American companies moving to China, so beating up on NAFTA and not addressing China trade when assisting blue collar workers in the US may simply hurt the relationship with the few neighbours Mr. Bush hasn’t already alienated in the last 8 years. This attack does nothing more than give a false solution to the US economy except for gaining a few votes for Mrs. Clinton and stirring sentiments against Latino immigrants in the US and trade in general.

Despite many in the US attacking Canada and Mexico for taking American jobs and wanting to integrate into the US, and many in Canada trying to tie Prime Minister Harper into the conservative right in the US to prompt and election, the Canadian Prime Minister has been strong in taking a stance on resolving NAFTA and other issues involving its neighbors. Mr. Harper has done a respectable job in addressing problems in NAFTA such as softwood lumber, defining Canada’s role in Afghanistan as a force to create a sustainable environment for aid, and his environmental policies has done a great deal to benefit Canadians and dialogue with Americans alike. Mr. Harper addressed Mrs. Clinton’s assessment of its neighbours as well, making the strong point that in this global energy crisis, Canada is one of the world’s largest exporters of petroleum and gas to the US and has a reserve some say as large as Saudi Arabia.

Harper has always been amicable to the US President, but is clearly not a George Bush of Canada. His support of Canada’s national healthcare system and standing social policies would be savored by many Democrats in the US during an election campaign. Harper clarified his relationship with Mr. Bush at the Summit: “What I appreciate most, what I’ve appreciated in our relationship over the past couple of years, is the fact that whether we agree or disagree, we’re always able to talk very frankly, very upfront,” Felipe Calderon of Mexico also promoted the benefits of NAFTA, helping to grow the Mexican economy to one of its most stable periods since the late 1960s. Both leaders, while surely realising the unpopularity of President Bush, coordinated their address at the Summit in support of NAFTA and against major changes or eliminating the agreement altogether. In the end, anti-NAFTA talks will likely progress into anti-China trade or simply disappear when Clinton loses the nomination for her party to Mr. Obama. With the recognition of America’s neighbours as true colleagues, issues of trade, aid and immigration can be addressed in a progressive manner in Obama’s or McCain’s first term of office.

In an article released last week by Spiegel International, evidence of FARC activities have been discovered after the killing of one of its leaders in Ecuador last month. The article goes into detail on what information was discovered. Information about the state of Ingrid Betancourt was detailed in the files. What most expected, is that she is quite ill and is putting up a strong front against her kidnappers. Another piece of valuable information is that the FARC is also in possession of 30 kilos of Uranium, not suitable for making bombs but useful in the production of armor piercing rounds which can cut through most modern tanks and APC’s possessed by the Colombian military.

What was most striking about the recent information is the evidence found linking Hugo Chavez with the FARC. Beyond mere sympathy for their cause, the documentation lists funds and weapons from Chavez’s Venezuela going to FARC rebels in Colombia. Despite threats by Chavez against Colombia a few weeks prior, it is in fact Chavez who is supplying arms against Colombia via the FARC according to Spiegel International. Details of Chavez’s assistance to the FARC includes $300 million in aid to the FARC as well as arms from the Venezuelan military and even a suggestion of giving the FARC shares from Venezuela’s oil revenues. Moreover, suspicions of Venezuela’s cooperation in the drug trade have been a constant concern of the Colombian government. The FARC makes most of its revenue from narcotics, but getting the drugs to Europe and the US is said to be done in some part through Venezuelan airports. An estimated 30% of the narcotics are said to go through Venezuela to outside markets according to Colombian drug authorities. A captured narcotics boss even referred to Venezuela saying “Venezuela is the drug trafficking mecca” in a statement made after his arrest.

With the release of this evidence to the international community is will be interesting to see how much the EU and US are willing to support a possible hot conflict in South America. With the War on Terror siphoning resources, a US election which is increasingly anti-trade and protectionist and years of ignoring foreign policy issues in the Andean region by most countries, Colombia has had little effective aid in the last 8 years except from Sarkozy of France. Evidence of the possible direction of the next US President may have taken its form in the recent discussion of opening a Free Trade Agreement with Colombia. The current debate between President Bush and the Democrats in Congress concerns threats in Colombia against local labour leaders. A debate to suspend the FTA has strong support in reaction to Colombia’s record of violence against local labour leaders, according to Human Rights Watch. Alternatively, the debate to increase trade has been linked with the current battle against the FARC in Colombia by addressing poverty in the country through helping grow the Colombian economy and eliminate the need for a paramilitary state and the need for drug money to support the underground markets in Colombia. The export of flowers and coffee and other agricultural products, grown on massive scale in Colombia may have the effect of displacing the need for illegal crops and create new markets for Colombia’s legal commodities. To date, Bush is pushing to pass the FTA through despite opposition. Trade might become the major election issue indeed, with Clinton gaining a lifeline from much of the debate against Obama who has taken a recent hit due to comments made about small town Americans. And it continues on and on…

An April 17th article by the Economist.com challenges the issues discussed above. The Economist suggests that for the last 6 years of Uribe’s Presidency, he has done everything a US ally who is fighting a War on Terror should do, and that is to win. His successes in driving the FARC from Bogota towards the small grottos in Colombia’s jungles and his support for the US Plan Colombia has made Uribe a poster child for US support abroad. With challenges due to human rights issues in the US Congress and the likely failure of a future FTA, pressure on Uribe may be limited as temporary trade measures currently in place can be extended towards Colombia. The real effect of US pressure as suggested by The Economist may have little weight as the security situation in Colombia, as support by most of the population in Colombia, takes precedent over any politics abroad. A possible end to the FARC and Uribe’s hand in those action will prove to reward Uribe in a Colombia free of major internal threats and strong enough to resist pressures from Washington. With threats from its neighbours as well, Uribe will likely get as much support as he needs if Colombia is threatened with any coercive actions which may help the FARC or the drug trade in Colombia originating from a foreign power. The US will likely be seen as abandoning its allies if it lets Colombia be attacked from abroad. It will be a likely paradox for the next President, if they give aid for security reason, but will not allow trade and development in the process. US Foreign Policy may seek to aid in a success in Colombia, as failures in Iraq and possibly Afghanistan may be the only legacy of US Foreign Policy for the next decade.

The real problem may be a current of anti-trade in the upcoming US election. While Colombia does have issues with its labour leaders, countries like Mexico and even Canada have been placed in the penalty box in Clinton’s speeches towards the electorate in Pennsylvania in order to gain more votes by poking at trade and immigration issues with its neighbours amidst the growing concern over trade with China. Depending on who becomes the next US president, it is certain that trade with any country in the Americas will be threatened if it will gain more votes for their candidate. Unfortunately reality and politics may never meet in that dialogue and US relations with its neighbours and assistance to Colombia will continue to be a problem for another 4 years of the American Presidency. The next vote will likely have as great an effect on America’s neighbours as it does on Americans themselves. The most interesting result may be to what degree will the next President placate China while placing economic and security concerns on its friendly neighbours to the north and to the south. What remains to be true is that a conflict in South America may mirror the next decade of international politics, which unfortunately may be as obtuse as the last eight years of ineffective foreign policy towards Colombia and Venezuela.

A tradition has formed in economic thought since the 1960s in comparing two regions with similar levels of poverty and inequality. Both regions have traditionally been open to economic measures to promote growth and achieve the level of development of North America and Europe. Asia and Latin America are both regions which have suffered historical economic problems and large structural reforms, and in the 1960s were considered at the beginning of new forms of development. While many Asian countries set off to promote trade and investment and increase Foreign Direct Investment in their economies, Latin America sought to follow the trend started by Raul Prebisch, by raising tariffs and trade barriers and producing their own products internally and keeping investment inside their own individual economies. The independence of Latin America from the industrialized world would take its form in Import Substitution Industrialisation policy for the region. The exception to the rule in Asia was China. A Communist system left China locked into trade with other Communist countries and limited trade with the West. Upon the onset of problems between China and the Soviet Union in the 1970s, some moves towards greater trade with the West came after Nixon’s trip to open relations with China. Since then the progressive growth and eventual acceptance of China into the WTO has made China the world’s next Superpower, or at least the country that manufactures everything for the world’s current Superpower.

With economic progress came inequality. In Latin America economic success could always be measures by the percentage of people that benefitted or were lifted out of poverty by a boom in any of the Latin American economies. Boom and Bust cycles dominated Latin America well into the 1990s and beyond into Argentina’s financial collapse in 2001. This debate dominated the World Bank, as neo-liberal ideas were debated comparing Latin America’s failures to East Asia’s successes in the report on The East Asian Economic Miracle, giving credit to reduced barriers and increased trade as the reason for East Asia’s success. Dissent came from the head of the World Bank itself when Joseph Stiglitz published Rethinking the East Asian Miracle after the financial turmoil of many of the Asian Tigers at the time and clear collapse of Argentina later on. Equality was still an issue as 30-40% of Latin Americans remained in poverty, East Asia reorganized and China slowly started to rise as an economic giant.

Lessons learned from the World Bank’s debates and the past economic crisis in Latin America and Asia showed that fast growth often promotes cultures of decadence for those who benefit from it and marginalize other parts of a society which do not have the means to raise themselves out of poverty. Systemic poverty among rapid growth was often the result, and became entrenched in the society in the long run.

In an article this week in FT.com, China is advised by the author to take lessons from Brazil in dealing with inequality while managing an economic boom. Not until the late 1990’s did progressive governments in Brazil seek to challenge the country’s historical inequality while absorbing slow positive growth and attacking poverty in a country of over 170 million people. Brazil’s past reflected much of that of Latin America’s with short periods of growth followed by economic collapse which left the impoverished in Brazil in constant chaos. While China does have a large amount of savings as opposed to those nations in East Asia and Latin America in the 60s, poverty still must be challenged in China as not to create an underclass in society. Economic booms have always been used to justify economic policies, but in almost every case the boom eventually turns to bust as economic cycles often do. Past policies to absorb the gains of booms are not put into addressing social problems that are often historical and require time and money to resolve past the boom cycle. While China is not Brazil, these two giants could learn a lot from each other. Both economies are considered to be economic miracles in their own right, but stability and long term growth are only truly successful if it benefits all citizens to a greater degree over a long period of time. While poverty is a constant reality in all countries, the plague of poverty inherited or created can be helped by proper economic and social policy during times of prosperity. With proper economic policy, the trend of inequality with growth do not have to be the result of economic progress.

Dorris Lin of our own FPA’s China Blog crosses the ocean with her piece on the new ties China wishes to form with Cuba as the island nation takes to change after the retirement of Fidel Castro. While China and Cuba have always had healthy trade ties ,with Castro gone and China being seen as the next Superpower by many in the US the new relationship Cuba will have with its neighbors will certainly be one of great interest for Washington. See the article here. Also please read FPA’s China Trade Blog as it is guarnteed it will make you smarter!

Messages of distrust between the Colombian Government and Hugo Chavez were considered no more than showboating after Hugo Chavez made headway in getting two Colombian citizens released, followed by open support for the rights of the kidnappers to be represented as a legitimate political party. Anger and frustration in Colombia which has been literally torn apart by the FARC and other rebel groups over the last 30 years put Chavez on the hit list of Colombians inside their own country and those in the Colombian Diaspora who often left their places of birth due to problems derived from the conflict in Colombia. Upon the death of Raul Reyes, one of the FARC leaders killed in a camp in Ecuador, a diplomatic scrum has begun between Ecuador, Colombia and Venezuela. Ecuador is accusing Colombia of intentional violations of their territory with the recent attack. Colombia did apologize, yet made clear their claim today of support by the Ecuadorian and Venezuelan Governments for the FARC and Colombia’s right to protect its own sovereign territory from terrorist attacks. The last piece of the drama comes with Hugo Chavez. By placing a number of heavily armed troops on its border to add flames to his theory that Colombia wishes to attack its neighbor and himself personally, an Andean War has perhaps taken its first steps. Currently, Ecuador and Colombia have removed their diplomats from each other’s embassies and have no diplomatic communication beyond Chavez’s saber rattling, or more specifically the sound of marching and the screeching of tanks surrounding the borders of Colombia on either end.

Conflict in South America has always been considered much as a Cold War between neighbors who never took actions beyond minor skirmishes. In the era of South American military governments in the 60s and 70s, many disputes over territory were the catalyst for countries like Argentina, Chile, Brazil and most everyone else purchasing some of the most advanced equipment, Exocet missiles and even in the case of Brazil, an old aircraft carrier to keep their neighbors at bay in the event of a hot conflict. Ironically, the heaviest conflict was in the early 80’s between the UK and Argentina when local unrest and economic tensions lead General Galtieri of Argentina’s military government to divert attention away from local issues by attacking a disputed territory known as the Maldives Islands/Falkland Islands. Galtieri’s strategy of conquest did nothing more than to end his own career and reduce the last of his support in Argentina to nil and deal one of the final blows to the era of South America’s military dictatorships.

In a classic sense the political fate of Chavez may come with his verbal, and now physical adoption of the dispute between Colombia and Ecuador. Along with verbal accusations of Colombia’s intention to murder him and his recent mobilsation of his armed forces, Venezuela has been investing in some very advanced and high tech weapons from the Russian army since the Presidency of Chavez began. In addition to Chavez’s rearming of Venezuela, his support has also started to wane with some Venezuelan groups as seen in his loss in a referendum to increase his powers under the Venezuelan constitution. Some may see Chavez as taking the strategy of General Galtieri in assuming a conflict, but the will of the Venezuelan people to give their children and blood on behalf of the FARC and Chavez is likely not as strong as Colombia’s wish to turn itself back into one of the most promising countries in the region, free of terror, economic strife and threats from their borders. Support from the US may balance out Colombia’s military capabilities as well, as its Air Force and Army are equipped for conflict with rebels and AK-47’s and not new Venezuelan Sukhoi fighters or armored tanks.

Another territory in the world this week that seems to have similar problems as Colombia are Israel and the Palestinian Territories. Like Colombia, conflicts from outside its border are influencing the lives of its people. As well, parts of the country considered to be under the right of control of the government and people are in constant civil distress. Another similarity is that no one knows how to solve the problems, but everyone can agree that aggressive influences from outside the border will do nothing more than keep Israel, the Palestinian people and Colombians in constant conflict at the behest of a Chavez or similar malcontent in their respective regions. Colombia has always had unfortunate experiences with rebels inside its territory, but hardly anyone can doubt the impatience the Colombian Government will have with a full attack from its neighbors who are seen as supporting rebels and making the Andean region into the next Middle East.

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.

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

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

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

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

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

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

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

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

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

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

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

No one would like to tell Hugo Chavez “Por que no te calles!(Why don’t you shut up!)” more than President Uribe of Colombia, as King Juan Carlos of Spain did a few weeks ago. Today Chavez accused the very popular Colombian President of working with the United States to form an army to attack Venezuela. This comes as Condaleeza Rice visits Colombia in support of Uribe’s anti-drug war, anti-FARC war and pro-trade agenda with the US which hopes to pull Colombia out of the quagmire of poverty, conflict and kidnappings which has kept one of the most advanced countries in Latin America in conflict for more than four decades.

Hugo Chavez has had mixed blessing since his verbal embarrassment by the King of Spain. Firstly he lost in a referendum to increase his powers and give him an indefinite term of elected office as President in the Venezuelan Constitution. On a second more positive note, Chavez helped negotiate the release of Colombians Consuelo Gonzalez, a former Colombian Congresswoman and Clara Rojas from a 5 year abduction by FARC rebels. This helped form a media coup against Uribe government’s failure to have hostages released in his tough campaign against the FARC. While Chavez’s help was appreciated by the hostages and he is making efforts to have more of them freed and limit hostage takings in Colombia, he is also pushing Uribe to react to his criticisms of the Uribe government’s incredibly popular policies in Colombia. In reality, Chavez said openly that FARC should be recognized as a real political power as they have an army and control territory, which angered many in Colombia who do not believe that the release of Gonzalez and Rojas gives Chavez the right to interfere in their local affairs beyond his humanitarian involvement.

Chavez has taken the opportunity in the last few years as Latin America’s greatest oil producer to push his politics beyond Venezuela’s borders. His visits to Iran and oil aid to Cuba and Bolivia did not illicit a strong physical reaction by the United States to date as the war in Iraq and petrol problems in the rest of the world has made Latin America a low priority for the Bush Administration since the rise in petrol prices 2 years ago. During this time however, countries like Colombia have been dealing with Chavez in good economic times. In a FT.com article on Latin American economies, the recent downturn due to the US housing crisis may affect non-petrol economies in Latin America with greater pressure than any other region in the world. While countries such as Chile, Mexico and Brazil can most likely weather an economic downturn with some negative temporary effects, Venezuela and Ecuador’s petrol economies will likely make them stronger in the region, which means more verbal fodder from Hugo Chavez. Increased poverty in hard economic times never yields a positive result for any Latin American political leader, but for Uribe who is the man who’s destiny is linked with the fight against the FARC, the backseat criticisms from Chavez in Venezuela will likely become louder in the next year. The only saving grace for Uribe is that no one really takes Chavez seriously outside of Venezuela, so unless Colombia does react through coercion against Chavez the best response may just be to take a page from the book of King Juan Carlos of Spain.