Thursday, March 28, 2013
It has been long settled that free trade is necessary for growth, as a condition for improving the welfare of any society . These days , it seems to arise new calls for protectionism. The so called “currency war” looks like the first step, before going further on with restriction on trade to compensate any loses of competitiveness arising from exchange rate variations. Latin America learnt also long ago that inward looking kind of growth, leads the economy to dependency and inequality . Since the latest reforms applied in the nineties, and those one later on, trade has been quite relevant for Latin American economies. Between 2009-2011, total trade (exports + imports) grew by 54% . However, intraregional trade is somewhat behind the trend. Between 2011-2010 the intraregional trade share was barely 19,8%, with Mexico and Chile as the countries with the higher share among all Latin American economies, with 30,1% and 26,6% respectively. It follows that there is space for additional intraregional trade and investment growth. The Trans- pacific partnership comes out to reinforced the trend focused in what it is considered the trade theater of this century : the pacific ocean. Since 2010, there has been negotiations to shape a high standard agreement to deal with the complex issues of trade (such as property rights ), within the new global scenario which has lifted up the status of Latin America ,to become a global partner for trade and investment. Originally stated in 2005 by a few countries, aimed at liberalizing trade within the Asia- Pacific region, is currently moving to deeper commitments. Just a few days ago Mexico, Chile Colombia (in process to become a TPP member)and Peru, set a framework to liberalize 90% of their trade flows. The significance of improving intraregional trade flows ,goes even beyond its shot run impact on export and import volumes . Because the higher mobility, it also support better allocation of resources within intraregional areas, such that it increases specialization, innovation , infrastructure investment all of which create competitive edge and endogenous sources of growth .
Thursday, March 14, 2013
History deals with facts , but not that much about the variables which surround those facts . Almost at the closing time of the XX century , in 1999 a strong mix of religiosity , patriotism, wrapped by both ideology and populism, took the Government of Venezuela. All at once in one man at his charge .The explanations of such outcome are lengthy .It involves the main stream of a nation. No matter this considerations, there is a single question of practical implications worth to be asked: Is there any lesson to be learn from such a combination to become the driving force for 14 years in that country?. Let get into that complex issue, focusing only in the political economic side of the story. a.- The Greek roots of democracy, are in the weakest within society, who validated it as a political model to solve problems arising from scarcity. Therefore, democracy becomes weaker and vulnerable, when it does not match the expectation of its people, but it does only that one of politicians, and those who are in the position of getting the rents arising from their privileges. Poverty and inequality living side by side with corruption, create a moral dilemma, hard to solve by market forces alone, whether politicians do not care about it. b.- The State replace the private sector, but at a cost : Any welfare gains have the risk of being transitory and unsustainable. The State does fit better with the combination distribution-taxes, instead of growth-incentives. Therefore, the sources of sustainable growth disappear. Thus, Ideology becomes the driving force to solve what otherwise it might be so by rules, good policies ,smart politicians and consensus. c.- The fundamentals of any economy are not beyond its own boundaries, unless it expands with more investment, innovation, technologies, and better human capital . Even in the case of natural resource rich countries , any attempt to surpasses those fixed boundaries , sooner or later will exacerbate inflation, fiscal deficit, speculation on secondary markets .Without corrections, it might all end at the same stage it began (corruption , poverty and inequality). d.- Ideology do not serve the cause of prosperity and growth as much well as Pragmatism does. Ideology by its own excluding nature ,make democracy even weaker, breaking down the self sustained balance of power. Any economic-political implication from the above? :There are some which it is interesting to be aware of: a.- The pending challenges for Latin America in a globalized world, is a matter of a new generation of pragmatic politicians, focused on people expectations and needs, but also friendly enough with the requirement for growth . b.- The State do not need to excludes the private sector to get its social goals. Distribution and growth are not necessarily self excluding, as long as there is a proper balance to keep incentives working.