Economic cooperation in Latin America

Ing, Tomáš Dudáš, PhD.

Introduction

Latin America has 17 countries
Colonized by Spain & Portugal (Iberian countries)  Large, diverse populations

490 million people total  75% of the people live in cities  Several megacities (more than 10 million people)

Industrialization & development grew since 1960s
Free Trade Area of the Americas (FTAA) proposes to integrate economies of Latin America, North America and the Caribbean (except Cuba)  Natural resource extraction remains important

3

Introduction
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Common colonial past Often military regimes Differences across the region Developing nations Main export articles – agricultural products and natural resources Large social disparities The role of the state in the economy is important

it i a Ha agu r ca y Ni u a g ra s Pa ura nd Ho ma na Pa ay u ug Ur a i liv or Bo lvad Sa ca El R i a l ic s t la ub Co ma ep te n R ua G nic a i m Do or d ua Ec ru Pe ile la Ch ue z ne Ve bia m lo a Co tin n ge Ar o ic ex M il az Br

GDP in Latin America in 2008 (mil. USD, PPP)
2 000 000

1 800 000

1 600 000

1 400 000

1 200 000

1 000 000

800 000

600 000

400 000

200 000

0

GDP/c in Latin America in 2008 (USD, PPP)
16000

14000

12000

10000

8000

6000

4000

2000

0
Ch i le M Pa Br Ar Ve Co ex Ur u az ge na n st gu ic o il nt a m ay ezue Ri ina a ca la Pe ru Bo Ha Ec Do Co El G Pa Ho Ni u ca liv i ti ua Sa m lo r nd ia ra in m do atem agu l va ur ic a bia gu r ay as al do a n a r Re pu bl ic

Main features of economic development in Latin America
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Import substitution policies Strong role of the state in the economy Huge investments in order to build national industries and infrastructure Populism Low level of domestic savings – the need of external financing

Failure of import substitution – “The Lost Decade”
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La Década Perdida It is a designation to the financial period of crisis in Latin America during the 1980s Average level of economic growth between 1980 and 1989 – 1,2 Hyperinflation in many countries Growth of income and wealth inequality Unsustainable foreign debt Rise of military regimes in the region

Main factors behind the economic collapse

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The prices of main export articles (agricultural products and natural resources) were falling in the international markets The price index of these products fell 28 % in the 80s and the share of Latin American countries decreased considerably (1960 7,7 %, 1990 4 %) The economic problems led to the fall of the domestic consumption – what led to the collapse of the industry The export oriented industries were not able to support the economy Collapse of domestic private investments Corruption and capital flight

Macroeconomic disequilibrium
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Rapid growth of the consumer prices from 1980 (80 – 56 %, 85 – 274 %, 89 – 1023 %) Record levels: Argentina – 3731 %, Nicaragua – 6727 %, Peru – 2948 % Long term deficits in the balance of payments Rapid growth of external debt from 228 bln. USD to 481 bln. USD Fiscal policy is a notorious weak point of Latin American governments – huge budget deficits are normal

Economic reforms in the 90s
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Democratization and economic reforms Washington consensus – created by the MMF and the World Bank Liberalization Privatization Anti inflation policies Growing economic cooperation Mintaország – Argentína Argentina – model country Economic turbulences and crises in the late 90s – Brazil and Argentina

Chile – oppression and economic reforms

Salvador Allende – socialist president– 1970

Military coup led by August Pinochet in 1973 (financed by US corporations and the CIA)

Chile – oppression and economic reforms

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Neoliberal economic policies – „Chicago boys” Result – fastest growing economy in Latin America Reform of the pension system – one of the most copied and controversial reforms 1989 – the return of democracy into Chile Limited role of the state in the economy – the only exception is the copper mining

Chile – oppression and economic reforms

Chile is the local champion of free trade – FTAs with USA and Canada Problem – still big income inequality

Start of economic cooperation in Latin America

ALALC - Latin American Free Trade Association
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Goal - creation of a free-trade zone Lost impetus as of 1965, and almost come to a complete standstill in the 70's

ALADI - The Latin American Integration Association

Goal - economic preference zone was established creating conditions favorable to the growth of bilateral initiatives

Mercosur - Mercado Común del Sur
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It is a Regional Trade Agreement among Argentina, Brazil, Paraguay and Uruguay founded in 1991 by the Treaty of Asunción, which was later amended and updated by the 1994 Treaty of Ouro Preto. Mercosur origins trace back to 1985 when Presidents Raúl Alfonsín of Argentina and José Sarney of Brazil signed the Argentina-Brazil Integration and Economics Cooperation Program or PICE Bolivia, Chile, Colombia, Ecuador and Peru currently have associate member status. Venezuela signed a membership agreement on 17 June 2006, but before becoming a full member its entry has to be ratified by the Paraguayan and the Brazilian parliaments

Mercosur

South Americans see Mercosur as giving the capability to combine resources to balance the activities of other global economic powers, especially the North American Free Trade Agreement (NAFTA) and the European Union The organization could also potentially pre-empt the Free Trade Area of the Americas (FTAA) The bloc comprises a population of more than 270 million people, and the combined GDP of the full-member nations is in excess of US$2.4 trillion a according to International Monetary Fund (IMF), making Mercosur the fifth largest economy in the World. It is the fourth largest trading bloc after the European Union.

Andean Community of Nations

The Andean Community of Nations is a trade bloc comprising the South American countries of Bolivia, Colombia, Ecuador, Peru. The trade bloc was formerly called the Andean Pact and came into existence with the signing of the Cartagena Agreement in 1969. Former members – Venezuela and Chile

Union of South American Nations

It is an intergovernmental union integrating two existing customs unions: Mercosur and the Andean Community of Nations, as part of a continuing process of South American integration. It is modeled on the European Union - including a common currency, parliament, and passport One of the initiatives of UNASUR is the creation of a single market, beginning with the elimination of tariffs for non-sensitive products by 2014 and sensitive products by 2019.

The Dominican Republic– Central America Free Trade Agreement 
Originally, the agreement encompassed the United States and the Central American countries of Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua, and was called CAFTA In 2004, the Dominican Republic joined the negotiations, and the agreement was renamed DR-CAFTA The goal of the agreement is the creation of a free trade area, similar to the North American Free Trade Agreement (NAFTA).