Latin America Outlook 2017
The world in 2017 is uncharted territory. A tide of shifting trends and events, the most unambiguous being the inauguration of Donald Trump as President of the United States, promise to usher in a new era of unpredictability and disruptive geopolitical and economic forces with which the liberal world order must contend. The populist and anti-globalization movements that have engulfed the US and Europe in the wake of mass immigration and stagnant economic growth have overturned the status quo and manifested themselves with the emergence of an entirely new dynamic in world affairs. In this increasingly confusing context, China has stepped up as defender of free trade as the Trump administration looks to implement protectionist policies, while Russia continues its geographic expansion into former Soviet territories and the Middle East through its support of the Assad regime in Syria. Lurking in the forefront is the global spread of extremism and exponential growth in technology that serves as a multiplier for many of these forces.
Latin America is facing a similar turbulent and unique outlook for 2017. The region turns to the new year in the wake of its first economic contraction since the global recession in 2009, caused by a myriad of factors including systemic corruption, low commodity prices, currency fluctuations, and, to some extent, the election win by Donald Trump.
The fallout of the Odebrecht corruption scandal continues to grab headlines and is demonstrative of the endemic corruption that is commonplace in Latin America. From what is known, the Brazilian engineering firm provided over $800 million in kickbacks and bribes for more than 100 projects in 12 countries, including Brazil, Argentina, Colombia, Dominican Republic, Ecuador, Guatemala, Mexico, Panama, Peru, and Venezuela in return for $3.34 billion in illicit benefits. Within Brazil, the company developed a scheme to overbill the state oil company, Petrobras, enriching high level politicians and company executives on the way. The delicate government of Brazilian president Michel Temer continues to deal with the results of this investigation, which turned over the proverbial brick of systemic graft in the Brazilian government and led to the ousting of former president Dilma Rousseff. The real extent of the corruption will probably never be fully known, but the repercussions are being felt across the region and will unseat politicians who were proved to be on the take.
In Mexico, the government of Enrique Peña Nieto and his PRI party will approach 2017 with the prospects of economic disaster, owed mostly to the campaign rhetoric espoused by President Trump. The most critical of Mr. Trump’s proposals are the repeal of NAFTA and construction of a border wall that will be funded by Mexico, which would all but shut down a well-established cross-border supply chain and close off Mexico’s largest trading partner. The Mexican peso dropped over 12% following the announcement of Trump’s victory in the US election and continues to be pounded as economists project worsened economic times for Mexico for at least the next four years. To add insult to injury, Trump’s promise to step up the deportation of an estimated 11 million undocumented workers adds a catastrophic element to Mexico’s economic outlook. Undeniably, Mexico is the biggest loser in the ascendency of Donald Trump.
In a similar manner, Cuba may be the other Latin American nation most exposed to a US policy shift under the Trump administration. Following former president Obama’s normalization of relations with Cuba in 2016, many businesses and trade groups began investment plans. The extent to which Mr. Trump does or does not continue promoting economic integration with Cuba remains to be seen, although his protectionist political capital will be used in order to negotiate his proposed “better deal.”
There are a number of other areas of concern for Latin America. Venezuela’s catastrophic economic meltdown has stoked the world’s highest inflation and may further escalate into a Syria-like international humanitarian crisis requiring the intervention of regional governments. Transnational gangs in Central America continue to ravage the population and spur mass northern migration. Additionally, the rejection of the Trans-Pacific Partnership free trade by the Trump administration will weaken access to certain markets for signatories Mexico, Peru and Chile.
There are also points for optimism. Colombia will be busy integrating FARC members into civilian society following the signing of the historic peace deal between the Marxist rebel group and the Bogota government. New capitalist friendly governments such as Macri’s Argentina will look to regional trade, including the potential consolidation of the Mercosur and Alianza del Pacifico trading blocs that will be a major initiative in integrating the region into a unified trade group. As pro-free market governments begin reversing the futile economic policies of the leftist regimes of the 2000s, Latin America will be seeking to adeptly navigate these disruptive headwinds.