Since the turn of this century, Latin America has been able to take advantage of a global commodity super-cycle and its macroeconomic stability to raise around 55 million people out of poverty to the middle class. But the decline in global growth as well as a decline in both trade and foreign investment flows are testing the sustainability of the region’s recent successes.
Downturns, however, can also be a time for countries to rethink their growth strategies. In today’s global economic environment this means reinforcing institutions and establishing a substantive, multi-level policy dialogue on matters of integration, investment, immigration, and policy reform. In his remarks at the Annual Conference of the Development Bank of Latin America (CAF), U.S. Vice President Joe Biden argued that supporting and defending the rise of the middle class and strengthening democratic institutions demands coordinated action across the hemisphere. I agree.
Why does prosperity depend on a shared regional agenda?
Biden’s remarks signaled the U.S. government’s eagerness to work with Brazil’s President Michel Temer, recently sworn-in after the impeachment of Dilma Rousseff. He underlined his support for recent developments in Colombia, following the agreement of an effective ceasefire between the government and Fuerzas Armadas Revolutionaries de Colombia (FARC). And he highlighted a renewed friendship with Argentina, where President Mauricio Macri’s reforms have paved the way for the country’s return to international markets.
Yet, this changing political tide throughout the hemisphere obscures the fact that most of Latin America’s challenges extend beyond any single country’s border and beyond any single country’s leaders: they need to be addressed regionally.
To ensure continuing high rates of growth and sustain economic and social development, countries can no longer rely on commodity-driven growth. We need only see the struggles of Venezuela, Brazil and even the dangerously cooling growth rates of Peru, Chile and Colombia to recognize the risks. Instead, countries need to focus on increasing productivity, through innovation and the insertion of small and medium enterprises (SMEs) in global value chains.
Part of the plan also has to include promoting the fuller participation of women, the young and indigenous groups in the formal economy. While many of the policies to accomplish these ends are national, global and regional dialogue, dialogue is not enough. Policies and commitments are essential to make them real and to sustain them.
Addressing cross-border challenges
The exchange of experiences, best-practices, strategic analyses, and expertise to develop new projects is essential to countries’ continued sustainability and success. Regional or international organizations, such as SIECA or the World Trade Organization, need to offer concrete incentives, such as the competitive allocation of funds, mechanisms to coordinate collective action and even systems of rules and policy regimes that generate shared benefits for the participating countries to collaborate.
The trade regime in Central America is a key example of an essential regional public good. Beyond efforts to harmonize tariffs and regulations, the countries have also linked their customs, migration and tax collection systems in a series of platforms that help officials verify documents for people and cargo moving through the region. This single, interoperable platform—Central American Trade Platform—will consolidate this multiplicity of services and offer improved functions to accelerate inspections in the border. If completed on time, the system will be in place by the end of 2017.
Even in its early stages, the coordinated trade platform has allowed Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama to take their trade from $4.7 billion in 2005, to $9.2 billion in 2015. The early process of building these intra-regional organization started to bear fruit just as the global financial crisis hit in 2007 and 2008, providing a much-needed cushion for the region’s economies from global turmoil. And today this evolving platform is helping strengthen the sub-region’s current positive outlook, even amidst the dimmer prospects for global growth and trade.
An eye for details and context
Policies in other sectors also point to the importance of strengthening and broadening institutions for regional coordination. In his shout out to the benefits of regional cooperation, Vice President Biden pointed to the case of the Electric Interconnection System for the Countries of Central America (SIEPAC) as a successful example of the benefits of the legal, institutional, and technical processes that enabled the creation of a Central American Electricity Market. The effort has reduced the cost of electricity for consumers across the six participating countries, ensured a more secure supply of energy and reduced their dependency on fossil fuels.
But SIEPAC is also a good example of where regional coordination and policy dialogue have fostered cooperation on sub-regional issues. For example, the project required creative methods to secure financing via a public-private scheme to deal with limited available resources and small national markets. It also leveraged the infrastructure available in each country to ensure a sufficiently large market that would be more conducive to securing the needed investments.
In the case of trade policies, too, countries in Central America are now seeking to create synergies between national commitments to implement the World Trade Organization’s Trade Facilitation Agreement and a regional action plan. That plan will further streamline border-crossing procedures, taking into account the needs of both the public and private sectors to not just make trade smoother within the region but also the region’s trade smoother with the rest of the world.
From Biden’s message it is clear that the Americas are a priority in the United States’ agenda. The path ahead will require a combination of high-level policy dialogue to face common challenges, but such efforts have to move beyond platitudes and declarations so common in summits across the world, and focus on the detail and implementation of specific programs. Doing so will prove crucial not just to deepening regional integration and the region’s integration into the global economy, but also to building more inclusive economies.
Javier A. Gutiérrez is the Executive Director of the Secretariat for Central American Economic Integration (SIECA). You can follow him on Twitter @jantgut.
