As the U.S. economy continues to tank, Latin America is caught up in the global freefall. As demand contracts, the prices of the region’s principal exports—crude oil, natural gas, metals, grains, livestock, and food—are plummeting, converting the region’s terms of trade from pretty good (especially over the past five years) to very worrisome. Oil prices, from highs of nearly $150 a barrel in July, had fallen to under $70 a barrel by November, distressing oil producers Venezuela, Mexico, Bolivia, and Ecuador.
Currency devaluation is also wreaking havoc with regional economies. Seeking the “safe haven” of the U.S. dollar, or simply covering losses elsewhere, private investors, both foreign and domestic, pulled their money out of Latin American stock markets at the onset of the crisis in October, provoking enormous devaluations, especially in Mexico and Brazil. This devaluation has further raised the price of imports and has made foreign debt payments more expensive.
And then there is the decline in remittances, the money sent home by migrants working abroad, a key source of income for millions of poor families. This decline has been particularly sharp in Mexico, which, according to the Bank of Mexico, received about $25 billion in 2007, making up about 3% of its GDP. But just as Mexicans were facing higher expenditures on food imported from the United States—more than $20 billion in 2008, a 30% increase over 2007—Mexicans working in the United States, laid off from construction, meat packing, and supermarket jobs, were becoming less able to send money home.
The Bank of Mexico estimates that when it’s all counted up, Mexicans working outside the country will have remitted home about three quarters of a billion dollars less in 2008 than they did in 2007. (Similar declines have been reported in Brazil and Colombia, but, curiously, remittances directed to Central America have continued to rise.)
There has been no unified response to the U.S.-led meltdown. Countries that have played by the open-economy rules of the Washington Consensus, like Brazil and Mexico, as well as those that have tried to chart a course of greater independence, like Venezuela and Bolivia, are all feeling the effects of declining commodity prices and rising import and foreign-debt costs.
The next few months will tell whether the attempts by some countries to diversify their import and export markets has allowed them to more successfully withstand the current crisis. For Brazil, and perhaps for Argentina and Venezuela, the cultivation of trading partners in Europe and Asia may well act as a buffer to the decline of U.S. demand. According to Business Monitor International, only 14% of Brazil’s 2008 exports have been destined to the United States, compared with 80% of Mexican exports.
Another buffer has been the amassing of foreign reserves, both dollars and euros. This may allow some countries to cover their need for credit while they wait out the slump. Brazil, for example, has more than $216 billion in foreign exchange reserves; Argentina has $47 billion in its central bank, and Venezuela has reserves of $30 billion, the largest per capita total in South America.
To foster the construction of a more independent regional economy, Venezuela and Brazil are leading an effort to found the Bank of the South (BancoSur), which would pool a portion of participating countries’ reserves. All the South American countries have indicated a willingness to join.
Meanwhile, speaking to the Ibero-American Summit in El Salvador in October, Mexico’s conservative president, Felipe Calderón—who ran for office in 2006 on an explicitly pro-neoliberal platform—called for a “new international economic order.” “The current crisis,” he said, “stems from a process of accelerated deregulation, in other words, the false premise that financial systems can regulate themselves without the presence of the state.”
Guatemalan president Álvaro Colom also blasted deregulation. “Guatemala,” he said, “should not have to pay for the failure of a model that we never wanted. I hope they don’t ask us for more poverty because we can’t give more.”
Fred Rosen is NACLA’s senior analyst. He is the editor of Empire and Dissent: The United States and Latin America (Duke University Press, 2008).