Top 10 Policy Drivers for U.S.-Latin American Relations in 2013

Assuming that the world does not end, according to the Mayan calendar in December, 2013 will be an important year south of the U.S. border. There are a number of issues to watch in determining the hemisphere's direction, although most depend less on the Nov. 6 election results and more on factors that are out of White House control. Savvy observers of the region will watch the 10 "C's" as the real policy drivers.

The first of these is Castro, as in Raul and Fidel. The U.S. election may bring a moderate tightening or loosening of U.S. restrictions on engagement with the island. The Cuban regime may or may not continue its episodic policy liberalization -- Cuban perestroika -- as a means to extend rather than overturn the Cuban system. But the real driver of change will be the death of one or both of the Castros. While it's true that no one has yet won a bet predicting their death, even the Castro brothers will succumb at some point to nature. Each passing year makes that more likely. When they do, there will be a power struggle on the island, and the United States will be faced with the critical decision of how to respond. This will be a game-changer, with historic implications, sucking the oxygen out of other hemispheric policy matters at least for a time. It is the one issue above all others that has the potential to scramble hemispheric policy, putting bilateral relations on the road to normalization and removing an irritant in the broader hemispheric agenda. Or not. The truth is that nobody knows what will come after the Castros, but the U.S. response must be nuanced and appropriate so as to encourage, rather than discourage, the advent of true democracy on the island.

The second "C" is related: Chavez. Having been re-elected Oct. 7 to another presidential term, Venezuela's Hugo Chavez nonetheless is battling cancer, which some say is quite serious; others give a more optimistic prognosis. Whatever the truth, it appears that Chavez is taking steps to position his supporters to continue the Bolivarian Revolution after he passes, most notably with the elevation of Nicolás Maduro to the vice presidency. Still, nobody in Venezuela appears to have the same charisma as Chavez, whose margin of victory in October was much less than in previous elections. Chavez won; Chavismo apparently took it on the chin. A power struggle is a strong possibility after Chavez passes away. Here, again, if Chavez dies, the United States will face an immediate challenge, working with others in the hemispheric including Brazil and Colombia to midwife a peaceful transition with a hoped for institution of the transparent social democratic model that has worked wonders in Brazil, Chile, Peru, Uruguay, and elsewhere in the Americas.

Third, China. Over the past decade China has played an increasingly important role in the Americas. Arguably, China's purchase of commodities (the fourth "C") from South America is the primary reason for strong regional growth even during the several global downturn beginning in 2008. But China is slowing, and commodities markets are softening. This will have knock-on effects for commodities exporters. Already, China is the top trade partner of Brazil, Chile, and Peru, and the second largest of Argentina and Cuba. Large economic gains and a growing middle class could be put at some risk if the China trade stalls for any significant period of time, because South America has not adequately used the time of high commodities prices to diversify their respective economies away from the export of primary goods. Slowing economies and people moving down not up the economic ladder will have political implications, likely increasing the appeal of populist leaders. We're a long way from this scenario, perhaps, but it is most definitely something to watch, particularly as Europe continues to struggle and the traditional engines of Latin America's growth remain uncertain. 

The fifth "C" to watch in hemispheric affairs for 2013 will be currencies, as in an over-valued Brazilian real. Finance Minister Guido Mantega continues to decry what he considers a currency war perpetrated on Brazil by the U.S. Federal Reserve's loose money policies. Curiously, he says nothing about China's active management of the renminbi at artificially low levels, a circumstance that has as much or more impact on the Brazilian currency as the dollar (since China is Brazil's top trade partner, not the United States). Regardless of the cause, however, an overvalued Brazilian currency is causing economic concern in Brazil, including the prospects of heightened inflation which has required higher, growth-dampening interest rates. Brazil's economy -- which represents over 40 percent of Latin America's total economy -- will grow in the neighborhood of two percent this year, and prospects for 2013 are around four percent, rather than the 5-7 percent growth that Brazil has enjoyed in recent years.

From the U.S. perspective, the cliff -- "C" number six -- is the primary issue. Whoever is elected faces the immediate onrushing train of the fiscal cliff, representing some $500 billion in pending tax increases and spending cuts that will automatically go into effect unless actions are taken to forestall them (it's difficult to be overly precise with the numbers, given different potential scenarios). Yet, even if such actions are implemented, the reality is that the U.S. economy continues to struggle, and the mounting debt overhang will need to be addressed by some combination of spending restraint and revenue enhancements. The "new normal" for the US economy could well be below historic growth averages. To the extent that, as some observers claim, the best thing that the United States can do for Latin America and the Caribbean is to put its own economic house in order and return to sustained levels of growth, this will also weigh on regional growth prospects. With regard to hemispheric policy, it remains an important indicator to watch.

Seventh is Congress. Most observers focus on the Executive in the foreign policy, for natural and appropriate reasons, but the reality is that most hemispheric policy issues must pass through Congress. From economic policy including taxes and spending levels, to trade, immigration, and Cuba, Congress has a determinative say. The shape and leadership of Congress will play a critically important role in building U.S. policy in the Americas.

At the same time, a disengaged Congress can lead to complacency, the eighth "C," which has largely defined U.S. policy toward the Americas for the past several years. As we have disengaged, others, notably Brazil but also China, have filled the regional vacuum. We will need to do a better job contending for the Americas in order to get back in the game.

Two significant opportunities in the Americas must also be put into the mix. Unsurprisingly, both begin with "C." The first is Colombia, whose leader Juan Manuel Santos has begun peace talks with the FARC guerrillas in a bid to put paid, once and for all, to the guerrilla conflict that has bedeviled Colombia for generations. Should he succeed in bringing lasting peace, not only will he have achieved a prize that has eluded every other Colombian leader who has attempted the task, he will also have removed one of the primary impediments to even higher Colombian growth. Economic take-off will ensue, and Colombia could well become the shining star of South America indeed all of Latin America.

Finally, carbon, as in energy. Latin America is sitting on a pile of energy, including oil and cleaner burning natural gas, and is also a global leader in alternatives including hydro, wind, and others. These will be particularly relevant in the context of on-again off-again discussions on global climate change. As the United States, China, and Latin America itself continue to grow, the region and its broad, cleaner energy matrix will increasingly be valued as an energy supplier to the world, an important position which does not come with the same security or other issues inherent in the Middle East energy equation. Energy is an area for extreme cooperation in the Americas, if we are, collectively, wise enough to pursue it.

For a better understanding of the direction Latin America and the Caribbean are going, these are the issues to look at in 2013.