Summary: 9th Annual Latin America Predictors Forum—Economic, Political, and Trade Predictions for 2013

Speakers:

• David Adams, Miami Bureau Chief, Thompson Reuters (moderator)
• Alberto J. Bernal-León, Head of Research and Strategy, Bulltick Capital Markets
• Eric Farnsworth, Vice President, Americas Society/Council of the Americas
• Alberto Gómez Alcalá, Executive Director, Economic Research and Communication, Grupo Financiero Banamex

Summary

Americas Society/Council of the Americas held a panel discussion on November 1 in Miami on the economic and political outlook for the Americas in 2013. The discussion centered on Europe’s impact on the broader global scenario, key areas of competitive advantage for Latin America, and the election in the United States.

The Global Scenario: Europe’s Impact

Alberto Bernal-León of Bulltick noted that an economist’s job today is much more difficult than it was 10 years ago. At that time, an economist covering a particular market need only monitor that specific economy, its inflation rate, and government policies. Now, what happens in Greece affects Colombia and what happens in China affects Mexico:  the role of the economist is inherently global.

Even with uncertainty surrounding the European Union, Bernal-León posits that 2013 will be a “year of resolutions.” Many economies throughout Latin America are quite strong and offer positive growth projections for the upcoming year, he said. In terms of growth, speakers concurred that Latin American economies would grow around 4 percent in 2013, slightly more than the IMF global growth rate forecast of 3.6 percent. Europe could hurt growth, he noted, but he is not bearish on that region. He argued that Angela Merkel is the key decision maker, but the question she is facing is more political than economic. She will not risk a butterfly effect of collapse across Greece, Ireland, Portugal, and Spain so she will eventually authorize the European Central Bank to print more money, help the Spanish recovery, and offer Greece some leniency, Bernal-León said.  

Alberto Gómez of Banamex agreed that Europe’s woes may pose a problem for the region, though underscored that there are issues at play in Latin America as well: poor public finance, high debt to GDP ratios, and low leverage for bank lending to the private sector. He stressed that Brazil must tackle its tax burden and Mexico must avoid oil dependency. AS/COA’s Eric Farnsworth added a prediction that energy reform will happen early in Mexican President-elect Enrique Peña Nieto’s administration, particularly given the high costs facing the country today.

Competitive Advantage: Demand in China and the United States

Speakers agreed that watching China is critical to understanding Latin America’s economic situation. Farnsworth noted that if Chinese growth slows to 6 percent instead of 7 to 9 percent, this will have a huge impact on Brazil. Watching commodities prices will also be key for the region: a price drop would have negative consequences in South America.

Bernal-León explained that rapid urbanization in China has a direct effect on economies such as Argentina and Brazil. When Chinese families move from the countryside to the city, they no longer grow their own food, causing demand for food products to soar. This is good news for Brazil, and as long as that country grows at 4 percent, much of the region can ride this tide, he noted. However, Bernal-León stressed that there are two speeds of growth across Latin America and the region should not be viewed as a single unit.

In addition, Bernal-León suggested that Mexico’s economy will be very strong in the upcoming year if only based on the fact that Mexico produces cars, which Americans will buy to replace aging models. Gómez agreed, citing a very stable macroeconomic period with low growth and no bubbles or similar challenges. He added that with labor costs flat over the last 10 years compared to rising costs in China, competitiveness in Mexico is growing and manufacturing will return.

Gómez stressed that the Trans-Pacific Partnership (TPP) is also very important for Mexico, and speakers agreed this could be a boon for the region. First conceived as an Asian initiative that included the Asia-Pacific Economic Cooperation (APEC) countries of Chile and Peru, the negotiations now include Canada and Mexico and may be broadened further.  Farnsworth noted this agreement could unlock tremendous potential for trade among all countries involved, many of which already have trade agreements with the United States but no agreements among each another. Bernal-León believes this agreement will show that trade is not one-sided, and that it should flow much more from South to North instead of the other way around.

The U.S. Election and Policy toward Latin America

Given the political environment in the United States and the upcoming presidential election, conversation also centered on the political forecast for that country. David Adams of Reuters recalled that Latin America is facing a period of “benign neglect” by the United States and questioned the panel on how the next president may treat the region.

Citing differences between the two presidential candidates’ positions, Farnsworth noted that President Barack Obama is more liberal on immigration and has said the administration will aim for comprehensive immigration reform by the end of 2013. He noted former Massachusetts Governor Mitt Romney is more aggressive on trade and would almost certainly ask Congress to restore executive fast track trade negotiation authority, which lapsed in 2006. The two candidates also diverge on Cuba policy, with Romney likely to reverse some of the current administration’s liberalizing changes.

However, Farnsworth stressed that on all these issues—immigration, trade, and Cuba policy—nothing can be done without congressional support. Leadership matters in politics and individuals matter, he said, and having a champion in Congress for a certain issue encourages movement on legislation. Unfortunately, he noted that many staunch advocates for Latin America have either retired, been ousted from office, or passed away, leaving little promise for policy changes.

Speaking about individual leadership, Adams questioned the panel on the restoration of a special envoy to the Americas, which existed during former President Bill Clinton’s administration in the 1990s. All agreed that having such an advocate would send a strong message and jumpstart dialogue and cooperation after a period of neglect. Farnsworth said that the most important thing for such a leader would be a personal connection with the president, which would carry legitimacy in the eyes of regional leaders who chose to communicate through the special envoy.