Latin America: six reasons not to fall asleep

15 2017 August
Executive Education INCAE

No one should be surprised by the changes because they are the only permanent thing, said Heraclitus of Ephesus. It is clear that the great Greek thinker, who lived in what is now Turkey, was a philosopher and not a businessman. That is why he was able to speculate about the constancy of change and its inevitability without shocks or pictures of stress.

The emotional state of an entrepreneur who prepares his medium-term business plan is different when he is informed that conditions are changing and will continue to do so, that today's context served to make decisions today, but who knows what will happen in a while.

That's what scholars are for, those who allow themselves to take their eyes off the immediate road to see the horizon and try to identify the terrain there, if possible.

Eduardo Ulibarri, former Costa Rican ambassador to the United Nations, international consultant, political analyst and journalist accustomed to changing environments, did the exercise of breaking down the reasons why it is convenient not to rest on his laurels, despite slightly positive growth projections for the immediate future launched in April by the Economic Commission for Latin America and the Caribbean (ECLAC).

In his presentation, prepared for INCAE Business School, Ulibarri points out that changes are taking place in the international environment, of course, as always, but this time the paradigms are changing:

Trump in glassware. The new government of the United States is, as is known, a key variable in world trade and especially in business on the continent. The exercise of Donald Trump with his nationalist speech already marks six months with clear signals against the commercial opening of which the United States has been a leader for decades. Specifically, their willingness to renegotiate the Free Trade Agreement with Mexico and Canada keeps the large Mexican market nervous, in itself vigilant about the effect it may have on Trump's restrictionist policies on migration.

Better together. Be careful, that the reasons for disclosure should not be entirely negative. China seems ready to take up the banner of economic globalization, partly with rhetoric, but also with realities. One of its lines of action in Latin America is the Pacific Alliance, the group made up of Chile, Mexico, Colombia and Peru, to which Panama and Costa Rica also aspire to join, although the current government seems to have lost its enthusiasm.

Asia is here to stay. The Pacific Alliance seems willing to take advantage of the reactivation of international markets, caused in large part by the recovery of the economy that the United States achieved in 2016, with which it finally seems to be able to breathe half after the crisis of 2008-2009 . China's robust presence in Latin America is not too new, but there is a process of consolidation and the Pacific Alliance knows it. And not just the Pacific Alliance.

Tachycardias in the south. Mercosur is also doing its homework to take advantage of the reactivation of international markets, and is even pushing with greater vigor than ever the negotiation of a treaty with the European Union. However, internally it lives turbulent times that inevitably condition its business potential. With the liberal government of Mauricio Macri in Argentina, in clear turn after the socialist cut of Cristina Fernández, the market recovered some optimism despite internal tensions. Brazil, the southern giant, wakes up every day with shocking news due to the political implications of the 'Lava Jato' corruption case at the highest levels of the federal government. Lula da Silva, the socialist leader who knew, fights between the seat in a court and the atrium of a candidate for presidential re-election, replacing the also questioned Michel Temer. Together with the other members, Uruguay and Paraguay, they remain vigilant about the course of the political, social and economic disaster in their neighbor Venezuela, where the most frequent question is how long will Nicolás Maduro stay in power? In Peru, politicians and businessmen are questioned about the Oderbecht case rooted in Brazil, while Colombia tries to maintain its good economic rhythm in parallel to a transcendent (and laborious) peace process between the Government and the guerrillas, with expected effects on Colombian competitiveness.

Plummeting populism. The setback in the presence of populist governments is undeniable. It was seen in the electoral defeat of Fernández in Argentina and in the cancellation of the regional leadership that Venezuela exercised until five years ago thanks to its oil tap. Evo Morales has distanced himself in Bolivia, and in Ecuador Rafael Correa left power to Lenín Moreno, who belongs to the same party, but has launched clear signals of restraint and dialogue, far from the confrontational and highly media style of his predecessor. The situation in Cuba could not be more uncertain; With the arrival of Trump and the slowdown in the process of rapprochement with the United States, the government of Raúl Castro seems to have remained in the middle of the river and, having already given signs of conciliation with Obama's Washington, no longer the possibility of returning to belligerence of other times. In addition, your partner Venezuela can contribute little to you. 

Attention to finances. It is now known that the spring season of high commodity prices has passed, from which so many good fruits we get in Latin America after the 2008 crisis. In 2015 and 2016, most currencies suffered depreciation and have started to flare up. Preventive signals about the stability of internal finances, despite the supply of reserves that were accumulated in the years of “fat cows”. Only Peru, Uruguay and Panama decreased their percentage of debt against the Gross Domestic Product (GDP) in that period and 11 countries (including all the largest economies in Latin America) had growth of between 10 and 25 points. Waters! The Mexicans would say.


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