Wednesday Night #843 Latin America

Wednesday evening April 29 was concerned mostly with Latin America and the proposed expansion of NAFTA to include ultimately, all of the American continent from the Arctic to Tierra del Fuego. This will form a trading block larger than Europe and second only to Asia.

Our good friend, Jacques, had prepared for the evening's discussion with his habitual thoroughness and offered up a number of statistics, the accuracy of which some guests questioned. Jacques reminded us that these were forecasts only for 1998 and pointed out that not all countries prepare the numbers in the same way.

For purposes of the discussion, "Latin America" was deemed to include only the 15 countries for which statistics are readily available and considered to be reliable; of the 15, most of the discussion centered on the ABC (Argentina, Brazil, Chile) countries, plus Colombia, Venezuela and Mexico. When the new Free Trade Area of the Americas is referred to, The Americas includes 34 countries (not including Cuba).

Average real economic growth is expected to be 4%; Argentina will be 6%, Chile 5.5%; Mexico 5%, all surpassing those of the United States and Canada.

Inflation, the constant problem of the Latin American economies, appears to be beaten. As a startling example, Argentina's inflation rate has dropped from 500% to .5%. The rate for the area used to be around 700% and is now 5-9%.

The economy of Brazil is by far the largest of all Latin American countries, followed by those of Mexico and Argentina. Brazil will be the eighth most important economy in the world but is currently suffering from recession partly attributable to the fires and droughts in the Northeast, a traditionally problematic area of the country (El Nino factor); unemployment is rising.

Although Latin American nations have been hurt somewhat by the Asian crisis (drop in prices of Asian goods has affected export prices), the effect has not been as devastating to their economies as has been the drop in commodity prices. This factor, mainly the reduction in oil prices, has been largely responsible for Argentina's five billion dollar trade deficit as well as that of Mexico (one billion) for the first two months of this year. However, Venezuela maintains a trade surplus.

Seven of the eight countries discussed have stock markets. These are generally down, except for Brazil and Argentina; Mexico has recovered about 10%.

Brazil has fifty three billion dollars in international reserves and Mexico, twenty-nine billion.

Per capita income is relatively low (nine and a half thousand dollars in Argentina). In Chile, income disparities are widening. Average wage buying-power in real terms in Mexico in 1997 was 30-40% of what it had been in 1981. Trickle-down effects have not materialized in the successful economies. Nonetheless, retail sales are expanding in Argentina and Mexico.

The signals are mixed, but prospects for sustained prosperity and growth in trade are evident. The reckless reliance on credit in the past has resulted in the International Monetary Fund imposing rigorous discipline on Latin American countries. The current situation portrays a continent in the process of change.

We were reminded that the next 12-18 months have a politically charged calendar with elections in almost all of the major countries.

A problem that looms large is the historic distrust of the United States on the part of Latin American countries. However, this situation offers an opportunity to Canada which has arrived late in the game (remember that Canada has only recently accepted membership in the OAS- Organization of American States). Canada does not carry the political, quasi-colonialist burden of the United States in this hemisphere, but is championing the development of hemispheric trade relations.

To protect themselves from the perceived threat to their sovereignty, Latin American nations are more receptive to joint ventures than to direct foreign investments. Meanwhile, with the consolidation of Europe politically and economically it appears inevitable that the Americas create their own trading bloc along the lines of an expanded NAFTA. The current political efforts will lead to trade and will inevitably result in the widening of Canadian business interests in Latin America.

Discussion of the points raised followed. Several business persons queried the advisability of expanding into Latin American markets. One mentioned that lenders are leery of projects even when guaranteed by the local government; another suggested that business is too difficult to conduct, production standards hard to maintain, in addition, political problems, the reliability of distribution systems and quality of materials are issues although qualified labour is not difficult to find.

Some skepticism was expressed regarding the reliability of available statistics, particularly those concerning unemployment (3.5% for Mexico appeared highly questionable). It would have also been interesting to have heard something about socio-economic issues: life expectancy, public healthcare, literacy rates, rural migrations, increase/decrease in disposable incomes, the condition of municipal infrastructures, crime rates and drug use… In counterpoint to the Summit of the Americas, there was a parallel popular summit of environmentalists, trade-unionists and human rights activists. Their conclusions were considerably less euphoric than those of their government counterparts. (Editor's Note: see excellent article "A complex reality in Latin America" by Andrew Seleanu, The Gazette, Friday, April 24, page B-3) [not on Gazette Web]

Jacques de Larosière, when he was Managing Director of the IMF and our Wednesday Night guest, pointed out that even the IMF has difficulty obtaining accurate figures as countries do not report debt under one year.

All agreed that Canadians in general are not yet comfortable with the different business culture that prevails. However, it is obvious that the Prime Minister and his government have embarked on a policy of free trade with and for the Americas and Canadian business will develop and profit in the region. There are already notable successes in Chile, Brazil, Mexico and, of course, Cuba.

A new guest, St-Laurent City Councilor Yvette Biondi, spoke of the success of the Techno-Parc and business development efforts focused on Bogotà.

Lengthy discussion followed regarding the merits of the U.S. Embargo of Cuba, the positive results of the Prime Minister's discussions with Fidel Castro, the legitimacy of the Cuban government and its eventual fate. As usual when the subject of Cuba is broached, opinions varied. The conclusion? Most feel that the Embargo should be lifted and that more can be accomplished through trade and exposure to open markets than by isolating the nation. One dissenter felt that there should be no contact with the "criminal" régime of Castro.

Returning home for a quick political fix, the race for Montreal City Hall seems to be heating up. Will Bourque come up through the middle? Amid the divided opinions, there was one strong endorsement of Jacques Duchesneau. At the provincial level, Jean Charest is carrying on with his campaign to meet the people without tipping his hand as to who his Brains Trust will be; rumors in the PLQ are that he is looking for a number of fresh faces. One rumor is that the TMR seat is reserved for Vera Danyluk. This appears odd following so soon after her battle over the MUC Chairmanship; if she were to step down now after winning that battle, she would have some formidable opponents. Stay tuned!

by Herbert Bercovitz

Edited by Diana Thébaud Nicholson