Development & Aid, Economy & Trade, Financial Crisis, Headlines, Latin America & the Caribbean

Q&A: "Regional Cooperation Is the Challenge" for the Economy of Latin America

Daniela Estrada interviews ECLAC expert OSVALDO ROSALES

SANTIAGO, Aug 26 2009 (IPS) - Exports by Latin America and the Caribbean will fall 11 percent this year – the worst performance since 1937, according to a new United Nations report.

The Economic Commission for Latin America and the Caribbean (ECLAC) report, released Tuesday in Santiago, also says imports will be down 14 percent – the sharpest drop since 1982.

Chilean economist Osvaldo Rosales, director of ECLAC's International Trade and Integration Division, expanded on the report, "Latin America and the Caribbean in the World Economy 2008-2009: Crisis and opportunities for regional cooperation", in this interview with IPS.

In addition, foreign direct investment (FDI) will drop between 35 and 45 percent and migrant remittances will be down five to 10 percent.

Nevertheless, there are signs of recovery, said Rosales, who led the team that negotiated Chile's free trade treaties

IPS: Is the worst of the crisis over for Latin America? OSVALDO ROSALES: From the standpoint of international trade, it looks like the worst of the crisis has indeed already passed. Prices already began to rally in the second quarter of the year, and the recovery has continued in the third quarter, in the cases of oil, zinc, wheat, copper and soybeans.

Farm commodity prices are also going up again slightly, and positive performances are projected by the end of the year for coffee, cotton, soybeans and wheat. Some minerals are also recovering, in relation to trade with China.

All of this indicates that it is highly probable that the drastic fall in trade which occurred in the last quarter of 2008 and the first quarter of 2009 has plateaud and we will start seeing a recovery.

IPS: What kind of recovery does ECLAC project for 2010? OR: The WTO (World Trade Organisation) projects a mere one percent recovery for the region's exports in terms of volume. ECLAC is slightly more optimistic with respect to exports in the region, in terms of both volume and value.

IPS: The report presented Tuesday indicates that in this crisis, trade between countries in the region has not had the countercyclical effect that it has had at other times in the past. Why is that? OR: That's because we don't have ad hoc financing mechanisms to buoy up intra-regional trade. When the global crisis hit, after Lehman Brothers went under, the global economy entered a path of unexpected uncertainty, in which credit of all kind virtually collapsed, especially financing for international trade. That accentuated the drop in export and import volumes.

I think that has created a gap into which regional and subregional cooperation mechanisms can step, by converging the credit lines of agencies like the IDB (Inter-American Development Bank), the CAF (Andean Development Corporation) and the Banco del Sur (Bank of the South) – once it is up and running – and development banks like Brazil's BNDES (National Bank for Economic and Social Development) and others.

IPS: South-South cooperation, with countries like China, India, Russia and South Africa, appears to be one of the keys to future development in the region. How can trade relations with these emerging powers be bolstered? OR: Within the context of South-South trade, the strongest relations are between Latin America and the Asia-Pacific region. Russia and India are still marginal actors in this region. That doesn't mean they should be neglected, but under the current circumstances, the basic focus would be, hopefully, to establish a collective approach towards defining a strategic strengthening of ties with China and the Asia-Pacific region.

China is a market of growing importance for the region's exports, and it is a major supplier. However, the region does not seem to be taking the steps needed to take full advantage of this circumstance.

That means rethinking trade and investment, and from there, for example, examining to what extent regional integration here could encourage an influx of capital from China, Singapore and South Korea to invest in infrastructure, energy and telecommunications, to pave the way for more fluid, lower-cost trade with that region while at the same time expanding intra-regional trade.

IPS: In its report, ECLAC acknowledges that the countries of Latin America have adopted protectionist measures to confront the economic crisis. But it stresses that these have been minimal compared to those implemented by developed countries. OR: When you look closely at the entire range of measures adopted in the context of the crisis, you find that there is a significant imbalance between those applied by the industrialised countries, principally the United States and Europe, and what this region has done.

In the industrialised economies, we have seen a reintroduction of subsidies on dairy exports – a 22 percent increase in the case of the United States – and of trade-distorting domestic supports in agriculture, as well as the application of massive bailouts for the car industry and the financial sector, which can also end up being protectionist if they are discriminatory with respect to other partners. And the impression is that they are moving in that direction.

If to that we add the "Buy American" provision (in U.S. President Barack Obama's stimulus package), even keeping in mind the restrictions that the president set in place to prevent even more accentuated discrimination, the impression that is left is that, above and beyond the rhetoric, industrialised economies have invested enormous resources in measures that end up being an obstacle to trade.

This region does not have such a large fiscal checkbook, so in the face of the magnitude of the crisis and its eventual effects on the balance of payments, countries have resorted to border measures that would appear to be temporary, in the majority of cases.

The interpretation is that the region has shown signs of maturity in confronting a crisis that has been quite drastic in terms of trade.

IPS: ECLAC also calls for a regional stance on climate change. How important is this? OR: Without a multilateral agreement on this, the most likely scenario is that the biggest countries will end up imposing unilateral policies that will define the playing rules for the world economy.

We are seeing a three-pronged tendency in the industrialised economies with regard to trade and climate change: the creation of subsidies for less carbon-intensive production, the introduction of penalties for products that reach those markets from parts of the world that have not made similar efforts in terms of reducing emissions per unit product, and a combination of public and private policies aimed at adoption of the carbon reduction label (which provides a measure of a product's carbon footprint across its life cycle).

The combination of these three policies could give rise to a scenario of much stricter requirements with respect to the entry of our export products into industrialised markets.

Some quite worrisome signals have already been seen, such as a renewable energy subsidy for the U.S. pulp and paper industry, which has been protested by Chilean producers.

U.S. forestry companies receive a subsidy for producing pulp from black liquor, a waste byproduct of cellulose.

In the first half of the year, companies listed on the stock exchange received 2.8 billion dollars through the subsidy. And if you include companies that have shut their doors, the total could be more than four billion dollars in the first half of the year, and between six and nine billion dollars for the year as a whole.

By contrast, Chile's total pulp exports amount to 2.6 billion dollars a year.

This could bring about a drastic shift in the competitive playing field, which means it is essential for the region to incorporate the issue on its agenda and to reach a regional accord based on a unified stance to take to (the climate change conference in) Copenhagen in December.

Otherwise, the region will find out from the press that there is a new set of playing rules that is going to have a major impact on possibilities for growth and development of exports.

IPS: ECLAC also insists that countries must make progress in terms of innovation. How can regional cooperation contribute to this? OR: That is a very good question. Today the global economy has been impacted by the confluence of three major currents of technological innovation: the digital revolution, biotechnology and new materials.

The novel aspect is that these three currents converge and generate synergies that will have an impact on the entire productive and commercial base.

This means the question of scale is absolutely fundamental. Many countries in the region are probably not in a position to generate the critical mass necessary for becoming competitive in these areas.

But if we coordinate and combine our domestic critical masses, at the level of prominent professionals, we would be in a better position to carry out projects with a regional and even global impact, and thus draw technology-intensive FDI.

IPS: What challenges is the region facing in order to pull out of the crisis and get back to a growth path? OR: One important challenge is to incorporate on the agenda a larger component of regional cooperation to tackle several issues: climate change, innovation, and infrastructure improvement, not only to communicate among ourselves but with the rest of the world.

It is important to join forces, expand the scale, cooperate. That is true in any context, and more so at this time of economic crisis.

In second place, the support that governments can give intra-regional trade should also be reflected in stable financing that makes it possible to avoid such a sharp plunge during times of crisis like today.