Sunday, January 05, 2014

2014 holds promise of better political future and higher economic growth for Latin America

Politics of the region will be more pragmatic and less polarized  and radical in 2014 and in the coming years thanks to the end of Chavism. The death of Chavez in March 2013 is a turning point for the region which was polarized by his virulent ideological warfare in the last fourteen years. He had revived the bad old image of "Caudillos" ( strong men) of the region. He saw his country and the region as a black and white world of either followers or enemies. In the name of his confused " 21st century socialism" he was hostile to private sector business and ruined it in Venezuela. Chavez had divided Latin America with his extreme positions on regional and global issues. With his petrodollar patronage he tried to create a group across the region to follow his example.  Venezuela today is much worse politically, economically and socially than before Chavez came to power. It has the highest inflation in the region, power shortage, huge black market for foreign exchange, import controls, long queues in front of poorly supplied supermarkets, rampant corruption and the worst law and order situation. Although Chavez gave some hope to the poor people with his populist policies, he has damaged the democratic and other institutional framework of the country very severely. This has given a clear message to the other Leftists in the region that this is the path they should avoid. Fortunately, Chavez's successor Nicholas Maduro does not have the charismatic and destructive talents of Chavez. More importantly, he does not have any pretensions to lead the region. He is becoming more flexible and less confrontationist. This is the best news for Latin America.

On the other hand, the Left in the region is likely to be more inspired by the moderate and pragmatic Michelle Bachelet who has come back to power in Chile in the December 2013 elections. She has won against the candidate of the ruling right wing party without resorting to radical rhetoric or threatening capitalism. Bachelet has promised course correction in governance by more inclusive development policies. She attaches as much importance to creation of wealth as much as to distribution with her mix of balanced pro-poor and pro-market policies. Similar models are already working well in Brazil, Uruguay and Peru. This is the model which is setting the long term trend for Latin America.

Mexico has set a new paradigm in the region in democratic functioning by the Mexico Pact under which ruling and opposition political parties have worked together with consensus on fundamental reforms and vital national policies of the country. The Mexico Pact has already delivered in just one year six vital reforms which would not have been possible but for the Pact. This has inspired confidence and optimism of Mexicans about the political system and set an example to democracies around the world which suffer from divisive politics.

Uruguay has set an example to the region and the world on the drug issue by enacting a path-breaking new law decriminalizing, legalizing  and regulating the production, sale and consumption of cannabis. This is, again, a turning point for Latin America which is a victim of the US-lead " war on drugs". More countries from the region are likely to follow the example of Uruguay in future.

The manifestation of people's power expressed through protest movements in Brazil and other countries in the region in 2013 have given a clear message to the political leaders to be more responsive to the aspirations of the people and be more accountable. The empowered middle class of the region might continue with protests from time to time to rein in the political leaders to deliver good governance.

Among the challenges being faced by the region drug trafficking, crime and violence continue to be a major concern in many countries and cities of Latin America. Mexico and Central America have suffered the worst from drug traffickers.The Colombia- Nicaragua maritime dispute flared up in 2013 due to Colombia's refusal to accept the 2012 ICJ verdict which gave a larger part of the disputed area to Nicaragua. This problem has the potential to raise some tensions in 2014 since the two countries have taken rigid stands.

The Colombian government negotiations with FARC guerrilla group has made some progress giving rise to optimism for conclusion next year. The retreat of the guerrillas has opened new business opportunities for oil and gas exploration, mining and agricultural production in the areas previously controlled by them.

Regional integration did not make any significant progress in 2013. Mercosur remained paralyzed due to the issues of suspension of Paraguay and inclusion of Venezuela. Paraguay has now accepted  Venezuela's membership and the two countries have restored diplomatic relations. Argentina's import restrictions and Brazil's protectionism continue to block Mercosur's further integration and external openings. UNASUR had also remained dormant in 2013. The Andean Community and the Central American regional group SICA also did not move much for further integration in 2013. On the other hand the Pacific Alliance has deepened its integration and is reaching out to other countries in the region as well as outsiders. 2013 marked the twentieth anniversary of NAFTA but there were no grand celebrations, since US has been focussed on Trans Pacific and Transatlantic partnerships. There have been calls from trade and industry organizations of the three members to move towards a NAFTA II. Thanks mainly to the rising Chinese wages, Mexico has regained its manufacturing competitiveness and has increased its exports.  Mexico, Chile and Peru are participating in the Trans Pacific Partnership ( TPP) negotiations. Colombia and Costa Rica have expressed interest in membership of TPP.

Despite the absence of significant forward movement in regional integration, the intra-regional and intra-subregional trade have been steadily increasing over the years. Intra-Latin American trade is about 20% of the global trade of the region.

There was revival of  anti-US sentiments in the region following the forced landing of the aircraft of President Evo Morales and the Snowden revelations of US spying on Brazil and Mexico among others. Brazil took the lead in raising in the UN the issue of US spying and is convening a global summit in April 2014 on internet security. President Dilma, as a show of displeasure, canceled her state visit to US scheduled in October.

China continued to strengthen its trade and investment partnership with the region and participated with a large delegation in the sixth China- Latin American and Caribbean Business Summit in Costa Rica in November. China is expected to overtake Europe as the second largest trading partner of Latin America by 2016. Chinese exports to Latin America are already more than those of Europe.

The EU- Central America Association Agreement signed in 2012 became fully effective from December 2013 with the ratification by the parliaments of all the Central American countries. The EU- Mercosur trade negotiations have been postponed due mainly to the Argentine import restrictive policies. Latin American exports to Europe have gone down due to the debt crisis and other economic problems in Europe.

The region will have Presidential elections in seven countries: Costa Rica( February), El Salvador(February), Panama(May), Colombia(May), Brazil(October), Uruguay(October) and Bolivia( December). In the two major countries namely Brazil and Colombia, the incumbents are expected to be reelected.

The biggest show of the year in 2014 will be the World Cup football in June-July in Brazil, the land of the " beautiful game".

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