Gross Domestic Product Growth

Country	2008	2009	2010	2011*	2012**
Argentina	6.8	0.9	9.2	9.0	4.9
Bolivia	6.1	3.4	4.1	5.1	4.5
Brazil	5.2	-0.6	7.5	2.9	3.5
Chile	3.7	-1.7	5.2	6.3	4.2
Colombia	3.5	1.5	4.3	5.5	4.5
Costa Rica	2.7	-1.3	4.2	3.8	3.5
Cuba	4.1	1.4	2.1	2.5	2.5
Ecuador	7.2	0.4	3.6	8.0	5.0
El Salvador	1.3	-3.1	1.4	1.4	2.0
Guatemala	3.3	0.5	2.8	3.3	3.0
Haiti	0.8	2.9	-5.1	4.5	8.0
Honduras	4.2	-2.1	2.8	3.2	3.0
Mexico	1.5	-6.1	5.4	4.0	3.3
Nicaragua	2.8	-1.5	4.5	4.5	3.5
Panama	10.1	3.2	7.5	10.5	6.5
Paraguay	5.8	-3.8	15.0	4.0	4.0
Peru	9.8	0.9	8.8	7.0	5.0
Dominican Republic	5.3	3.5	7.8	4.5	4.5
Uruguay	8.6	2.6	8.5	5.5	4.0
Venezuela	4.2	-3.3	-1.4	4.2	3.0
Total	4.1	-2.0	6.0	5.0	5.7

* Estimate | **Projection .... source ECLAC

 

Latin America will continue its growth in 2012- ECLAC Report

The Latin America and the Caribbean (LAC) region had a GDP growth of 4.3% (estimate) in 2011 and is projected to grow by 3.7% in 2012 despite the continuing crisis in Europe, uncertain outlook in USA and the slow down of the Asian markets.

Both Imports and exports of LAC crossed the trillion dollar mark in 2011. Imports increased by 23% to 1.038 trillion dollars.

Foreign Direct Investment leaped to a record level of 130 billion dollars from 75 billion in 2010.

Foreign exchange reserves increased to 761 billion dollars as of October 2011 from 655 billion dollars in 2010.

The total external debt as a percentage of GDP declined to 19.2% in 2011 from 20% in 2010. The fiscal accounts of Latin America closed in 2011 with a small primary surplus.

These are the highlights of the 21 December 2011 report of the Economic Commission for Latin America and Caribbean ( ECLAC) based in Santiago. More from the report as follows.

GDP growth projection in 2012

Latin America and the Caribbean GDP is projected to grow by 3.7% in 2012 . South America is expected to grow by 3.9% and Central America by 3.5%.

The highest growth is projected for Panama (6.5%) followed by Peru and Ecuador at 5% each. Brazil is expected to grow by 3.5%, Mexico by 3.3%, Argentina by 4.8%, Colombia by 4.5%, Chile by 4.2% and Venezuela by 3%. El Salvador has the lowest growth projection of 2%.

GDP growth in 2011

The provisional GDP growth of LAC is estimated to be 4.3%. South America had grown by 4.6% and Central America by 4.1%. Panama had the highest growth of 10.5%. Argentina grew at a Chinese rate of 9%, in 2011 slightly down from its impressive 9.2% growth in 2010. Brazil, the largest Latin American market grew by 2.9% while the second largest market, Mexico grew by 4%. Colombia had increased its growth to 5.5% in 2011 from 4.3% in 2010. Peru had grown by 7% in 2011, down from 8.8% in 2010. Chile had increased its growth to 6.3% in 2011 from 5.2% in 2010. Venezuela recovered from its recession in 2009 and 2010 and showed positive growth of 4.2% in 2011.

The main driver for the growth is domestic demand and underpinned by high commodity prices and demand.

Trade

Both imports and exports of goods of LAC crossed the trillion dollar mark in 2011. The imports in 2011 reached 1.038 trillion dollars increasing by 23.5% from 846billion in 2010. Exports increased by 23.1% to 1.097 trillion dollars from 891 billion dollars in 2010. Among the major countries, Brazil´s imports increased to 228 billion dollars in 2011 from 182 billion dollars in 2010. Mexican imports in 2011 reached 352 billion dollars from 302 billion dollars in 2010. Argentine imports increased to 71 billion dollars in 2011 from 54 billion dollars in 2010.

Foreign Exchange Reserves

Foreign exchange reserves swelled by 106 billion dollars reaching a record 761 billion dollars as of October 2011 from 655 billion dollars in 2010. Argentina was the only major country which lost (5 billion dollars) reserves in 2011. Brazil's forex reserves were the highest with 353 billion dollars followed by Mexico-141 bn, Peru- 49 bn, Argentina-48 bn, Chile- 39 bn and Colombia-33 bn.

Foreign Direct Investment (FDI)

The FDI reached a record level of 130 billion dollars in 2011 jumping from 75 billion in 2010. Brazil attracted 81 billion dollars in 2011 from 37 billion dollars in 2010. FDI in Mexico reached 9.8 9.8 billion dollars in 2011 from 6.2 billion dollars in 2010. FDI in Argentina fell to 3.9 billion in 2011 from 6 billion dollars in 2010. Peru was the third largest destination of FDI with 7.3 7.3 billion dollars in 2011. Chile received 5.9 billion dollars, Venezuela 3.6 billion dollars and Colombia 2.6 bn. It is noteworthy that Costa Rica had attracted 1.76 billion dollars of FDI in 2011 and had consistently been receiving over one billion dollars of annual FDI since 2006. Dominican Republic, Uruguay and Panama are the other small countries which have also been receiving over one billion dollars of annual FDI since 2005.

External Debt

The total external debt as a percentage of GDP declined to 19.2% in 2011 from 20% in 2010. Since 2010, the bulk of the debt of the government across most of the region has been domestic, in clear contrast to the situation in the past when external debt was more. In the case of Brazil, the ratio of external debt to GDP is 12.8% while for Mexico it is 18.3%, Colombia-21.3%, Peru-23.8%, Venezuela- 28.6%, Argentina- 31.5%, and Chile- 40.9%. The highest is in the case of Nicaragua, which is 56.7% but even this is very low in comparison to that of USA and many European countries. The total external debt of LAC stood at 1.03 trillion dollars in July 2011. Brazil's debt was 291 bn $, Mexico-206 bn, Argentina-133 bn and Chile- 98 bn.

Inflation

The average rate of inflation of the region increased marginally to 6.9% in 2011 from 6.5% in 2010. But it is expected to decline in 2012. It may be noted that the rate of inflation has remained in single digit since 2003. In 2011, Only Venezuela and Argentina had inflation in double digits.

Fiscal Policy

The fiscal accounts of Latin America will close 2011 with a primary surplus of 0.3% after last year´s deficit of 0.3%. The overall deficit declined on average from 1.9% of GDP in 2010 to 1.5% in 2011. This slight improvement was the result of an increase in revenues of 0.4% of GDP, while spending remained nearly constant as a proportion of GDP. Most countries reduced their deficits, transformed them into surpluses, or expanded existing surpluses.

Exchange rates

In the first ten months of 2011, currencies of 11 countries in the region had appreciated but the trend has reversed since then.

Risks and Challenges

What will be the impact of deterioration of the European crisis?

Impact on Latin American exports will not be significant since Europe accounts only for an average of 13% of Latin American exports. Brazil is dependent upon Europe for 23% of its exports, Chile 21% and Argentina 17.8%. Mexico will be least affected since only 5.3% of its exports go to Europe. However, Latin American growth will slow down if the situation in Europe deteriorates further dragging the world into another crisis.

Slowdown in the US market will affect Mexico which is dependent upon USA for 80% of its exports. It will also impact Central America from whom US is the destination of about 40% of exports.

But the good news is that the Latin American policy makers are well prepared to deal with external shocks, having gone through such situations in the past and having learnt lessons from them. It may be recalled that the region rebounded more rapidly than expected from the impact of the 2008/2009 crisis. Most of the countries of Latin America find themselves in a reasonably well placed in macroeconomic terms to cope with the expected deterioration in the global economy and are in a strong position to weather external shocks of the kind a deepening of the debt crisis in the euro zone is expected to bring. Compared with many of the more developed countries, levels of external and public debt in the region are low and international reserves are high.

Latin America is in a happy position to say.. cheers 2012 ! This is also reconfirmation of the Decade of Growth for the New Latin America.

 

Standard and Poor report on the impact of downgrading of US credit rating on latin America 25 August 2011

Full report in PDF

most countries can absorb potential external shocks and maintain their ratings

The region as a whole enjoys higher average sovereign ratings today than before the recent global recession.

We have not modified our GDP growth forecast and believe that Latin American GDP on average will likely grow around 4%-5% in 2011.

The ability of much of the region to weather the recent global recession reflects, in large part, its growing economic resilience. On average, Latin America in particular has stronger macroeconomic foundations to sustain stability than it did in previous decades, when external shocks typically led to severe problems.

The Latin American region was able to reduce its debt burden (as measured by net general government debt divided by GDP) during the early years of this century (see chart 2). In addition, many governments improved the composition of their debt, enlarging the share of local currency and fixed-rate debt with longer maturities (The debt burden in chart 2 includes debt issued for open market operations to sterilize capital inflows, as well as debt issued to finance deficits.

Beyond an improvement in their financial profiles, many countries made structural changes to reduce their external vulnerability. For example, a significant number of Latin American governments adopted a floating exchange rate and have been targeting inflation. Such steps gave them far greater capacity to absorb external shocks during the recent global downturn, while keeping inflation low.

External indebtedness has decreased in Latin America over the past decade, as have external financing requirements (see charts 4 and 5). Some governments, such as Brazil, are net external creditors. A better external position, combined with more monetary and fiscal flexibility, gave many governments more leeway to pursue modest countercyclical fiscal and monetary policy to soften the impact of the recent recession.

Latin America has higher levels of foreign exchange reserves than ever before, providing central banks with greater resources to offer liquidity lines to domestic financial institutions.

 

Colombia upgraded to Investment Grade 16 March 2011

Colombia has become the sixth country in Latin America to get investment grading
Felcitaciones to Amigos Colombianos..

The new rating given by standard and poor to Colombia is BBB

The other five investment graded are  Chile, Mexico, Brazil, Peru and Panama.

Next in line.. Uruguay ?

 

Will 2011 be the dawn of the Latin American decade ?

¨Will 2011 be the dawn of the Latin American decade ?¨ is the title of the webcast by Standard and Poors on 11 January 2011.

Joydeep Mukherji, Senior Director and Lisa Schineller, Director of Sovereign Ratings and Latin American Economist of Standard & Poor's Ratings Services have been interviewed in this 50 minute show

Joydeep has said, ¨the elections in latin america have become boring ¨. This is great news. Boring means no turn to the opposite direction or drastic changes in policies when governments change. There is a growing consensus on major policies even when governments are formed by parties of different ideologies.


Here is the link to the webcast

http://mcgraw-hill.mediasite.com/mcgrawhill/Viewer/?peid=67e94c7ad8b141f79a7851084473cb0f

Below are the Ratings given to major countries by S and P as of January 2011

Chile A+

Mexico BBB

Brazil BBB

Panama BBB

Peru BBB

Colombia BB+ ( next candidate for investment grade)

Venezuela BB-

Argentina B

 

Latin America had the strongest growth in incoming and outgoing FDI in 2010

Latin America and Caribbean was the region with the strongest growth in incoming and outgoing Foreign Direct Investment (FDI) in 2010. The region had the highest percentage increases as a recipient and source of FDI, according to a report presented by the Economic Commission for Latin America and the Caribbean (ECLAC) on 5 May. FDI inflows were up by 40% with respect to 2009 and stood at a total of US$ 113 billion.This is the third highest for the region after the 134 bn FDI in 2008 and the 114 bn in 2007.Outflows increased almost fourfold to reach an all-time high of US$ 43 billion.

For 2011, FDI flows to Latin America and the Caribbean are expected to maintain this trend and increase by between 15% and 25%.

Is this not remarkable considering the uncertain times in the developed markets? It is a reflection of the new paradigm of Latin America whose companies went out investing 43 bn $ when bailout is the cry heard in Europe. There are not anymore IMF cases in Latin America..They have shifted to Europe... Brazil is a net creditor to IMF !

The region's main FDI recipient was Brazil, where FDI inflows posted a record surge of 87%, going from 25.949 billion dollars in 2009 to 48.462 billion dollars in 2010.

The second main recipient was Mexico (17.726 billion dollars), followed by Chile (15.095 billion dollars), Peru (7.328 billion dollars), Colombia (6.760 billion dollars) and Argentina (6.193 billion dollars).

The only country which bucked the trend and had a negative inflow of FDI is..no prize for guessing… Venezuela.

In 2010, Chinese companies invested 15 billion dollars in Latin American and Caribbean countries, mainly in the form of mergers and acquisitions. For 2011 China has announced plans for investment of 22 billion dollars.

In 2010 China became the third largest investor in Latin America and the Caribbean, with a share of 9%, behind the United States (17%) and the Netherlands (13%).

Chinese investment has mainly been in Brazil, Argentina and Peru. Over 90% has targeted the extraction of natural resources, particularly the hydrocarbon sector and, to a lesser degree, mining. The State petroleum company Sinopec carried out the largest investment by acquiring 40% of the Brazilian operation of Repsol-YPF for 7.111 billion dollars. The oil companies CNOOC and Sinochem also announced major acquisitions in Brazil and Argentina, respectively. In terms of mining, the major companies are Chinalco and Minmetals (Peru) and Wuhan (Brazil).

The main drivers for the incoming FDI in Latin America are the boom in the demand and prices of oil, minerals, agroproducts as well as the growing domestic demand.

The outward FDI of 43 bn$ is the highest in the history of the region. The last highest was 41 bn$ in 2006 and the thrid highest was 36 bn in 2008. Mexico was the country that invested the most abroad in 2010 (12.694 billion dollars). This was followed by Brazil (11.5 billion dollars), Chile (8.744 billion dollars) and Colombia (6.504 billion dollars). Most of the investment went into other countries of the region.

The large Latin American companies investing abroad are called as Multilatinas or TransLatins. These are companies such as Vale, Petrobras, JBS and of course, the companies of the world's richest man Carlos Slim from Mexico.

The Indian companies which made major investment in the region in 2010 include Renuka Sugar, Godrej and Aegis. In 2011 UPL has already invested 600 million dollars in Brazil.

Latin América: Foreign Direct Investment inflows.
(Millions of dollars)

Country	2000 – 2005	2006	2007	2008	2009	2010
South América	37969	43410	71227	91329	54550	85143
Brazil	19197	18822	34585	45058	25949	48462
Chile	5012	7298	12534	15150	12874	15095
Perú	1604	3467	5491	6924	5576	7328
Colombia	3683	6656	9049	10596	7137	6760
Argentina	4296	5537	6473	9726	4017	6193
Uruguay	393	1494	1329	1809	1258	1627
Bolivia (Plurinational State of)	350	278	362	508	426	651
Paraguay	48	95	202	209	99	268
Ecuador	839	271	194	1001	319	164
Venezuela (Bolivarian Republic of)	2546	- 508	1008	349	-3105	-1404
México	22722	19779	29714	25864	15206	17726
Central América	2549	5756	7235	7593	5057	5847
Panamá	656	2498	1777	2402	1773	2363
Costa Rica	597	1469	1896	2021	1323	1412
Honduras	418	669	928	1006	523	798
Guatemala	334	592	745	754	574	678
Nicaragua	219	287	382	626	434	508
El Salvador	325	241	1508	784	431	89
TOTAL	63239	68944	108176	124786	74813	108717

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Colombia, Peru and Chile stock markets merger

The stock exchanges of Colombia, Peru and Chile agreed in November 2010 to merge their trading, giving international investors access to roughly 600 stocks - more than any single country in Latin America.

In January 2011 the Peruvian and Colombian stock exchanges entered into a full-blown merger agreement.

 

Colombia, Peru, Chile and Mexico sign Pacific (ocean) Agreement - April 2011

The four countries on the Pacific side signed this Agreement for greater integration of their markets through free flow of goods, services and capital. It is not likely to become a strong block such as Mercosur.

 

Impact of the Global financial crisis on Latin America

Latin America has withstood the Western financial crisis with relatively modest impact - article by the author 13 Nov 2008

Latin America and the financial crisis - Article by Jorge Heine 4 Feb 2009

 

Chile has become a OECD member in January 2010

The Organisation for Cooperation and Development (OECD) has announced that Chile has been invited to become the 31st member of the Organization. Chile formally accepted this invitation when an Accession Agreement was signed in the presence of Secretary-General Angel Gurría and President Bachelet on January 11, 2010. The country was in negotiations to join the organization for two years. This means that Chile´s investment and tax policies will have to be in conformity with OECD standards.

Mexico is the other Latin American member of the organization.

 

 

Macroeconomic indicators of the region since 2000

GDP Growth in percentage

2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010
4.0	0.4	0.5	1.8	5.9	4.6	5.6	5.6	4.0	-2.1	5.9

 

Trade in billion dollars

	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010
Exports	371	356	358	391	482	581	695	780	906	701	889
Imports	375	366	338	349	425	502	598	712	864	650	843

 

Foreign Direct Investment (In billion dollars)

2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010
72	67	51	38	51	57	32	93	99	69	70

Brazil passed Mexico as Latin America's largest FDI recipient, garnering a $37.4 billion, a 99.3 percent increase from 2006. FDI to Mexico grew by 92.9 percent to $36.7 billion. Combined the two countries - the largest economies in Latin America - accounted for nearly 60 percent of all FDI to the region. Chile, the third-largest FDI recipient in Latin America despite only having the sixth-largest economy in the region, also managed to double foreign investments - $15.3 billion, an increase of 92.2 percent. Colombia, the fourth-largest recipient of FDI, had another good year. Total FDI grew by 30.5 percent to $8.2 billion.

Main areas into which FDI went in are extractive activities and resource-based manaufacturing. Peru, Chile, mexicoColombia and Brazil attracted investment in mining.

The outflow of FDI from Latin America in 2007 was 24 billion dollars. Brazilian, Chilean and Mexican multinationals account for a large part of this. In 2006 FDI from Brazilian companies alone was 26 billion dollars.

Chilean IT company Sonda acquired a Brazilian company for 118 million dollars

Petrobras is investing in biofuels in Colombia, Dominican Republic and Angola and Mozambique.

 

External Debt

(In billion dollars)

2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010
743	749	740	768	764	675	666	736	745	807	944

 

Inflation

(In percentage)

2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010
9.0	6.1	12.2	8.5	7.4	6.1	5.0	6.5	8.2	4.7	6.5

Inflation has been decisively tamed in Latin America. It is in single digit since 2003. Only venezuela, Bolivia and Argentina had doble digit inflation in 2008.

 

Evolution

All the countries (except Cuba ) from Brazil to the tiny Montserrat have now become part of one or other trade blocs of latin America. Approach to markets of individual countries has to therefore take into account the bloc to which each country belongs.

The LAC countries attach importance to the ongoing integration process. They have realised the value of collective strength. The regional integration has reinforced the stability and prosperity of member states. While the integration process passes through transitional stages and difficulties, there is no doubt that the direction in which the countries are going is greater integration.

Regional integration is not new for Latin America . Even before independence (in the 1820s) Simon Bolivar, the liberator of South America , had called for a political union of the countries in the region. In the fifties and sixties, there were some attempts for regional and sub-regional integration. But the times and circumstances did not favour success.

In the eighties and nineties the Latin Americans realized the need for and advantages of regional integration and moved decisively to create new trade blocs and revitalize those created earlier. . Individual countries and regional groups have been signing Free Trade Agreements with other countries and blocs within as well as outside the region. Regional integration continues to be an effective tool for broadening markets, diversifying exports and achieving economies of scale, which, in turn, are decisive factors in enabling the Latin American and Caribbean countries to enhance their productivity, generate employment, attract capital and stimulate investment.

There are four sub-regional groups in LAC region.

• MERCOSUR
• Andean Community
• Central American Integration System(SICA)
• CARICOM

Mexico is , of course , part of NAFTA which includes USA and Canada

In December 2004, mercosur and andean community agreed to form a South American Community of Nations ( UNASUR) including Chile, Guyana and Suriname, which means the whole of South America.

Among the sub-regional groups the Andean Community has the strongest institutional framework, although it has been weakened after the exit of Venezuea. CARICOM and SICA have created some supra national authorities. Brazil in Mercosur and USA in NAFTA are opposed to supra national institutions.

 

MERCOSUR (Mercado Comun de Sur-Southern Common Market)

Brazil, Argentina, Uruguay and Paraguay are the members. Chile and Bolivia are associate members. Recently peru has also become an Associate member.

Venezuela joined Mercosur in 2005 as a special member. On 4 July 2006, the Presidents of Venezuela and the four Mercosur countries signed protocols at Caracas confirming the membership of Venezuela in Mercosur. But this is yet to be ratified by the Congresses of Brazil and Paraguay.

According to Brazilian newsreports in the last week of January 2011, Colombia has expressed interest in joining Mercosur. The Paraguayan Foreign Minister, during an interview on 31 january, said that this would be put in the agenda for discussion at the next summit to be held in June 2011. Paraguay is the pro-tem president of Mercosur in the period January- June 2011. it may be noted here that the Paraguyan Congress is holding up the ratification of Venzuela´s membership of Mercosur by not agreeing to the proposal.

Bolivia and Ecuador have also applied for full membership of Mercosur. This has been agreed in principle.

The Secretariat of Mercosur is located in Montevideo, Uruguay. Mercosur, formed in 1991 with the objective of free movement of goods, services, capital and people became a customs union in January 1995. It is now pursuing the third stage of its integration ‘Common Market’. Intra-Mercosur trade is duty-free while there is Common External Tariff (CET) for imports from other countries. The average CET is 14 percent and it ranges from 0 to 20 percent. CEP has 800 exceptions including cars and sugar. The Customs Union dos not function perfectly and there are problems from time to time.

Mercosur has become a successful regional market of 240 million people and 2 trillion dollars of GDP. It is the third largest integrated market after EU and NAFTA.

Mercosur’s role model is European Union. Its integration project envisages coordination of macro economic policies, common currency, Mercosur Bank, common citizenship and cooperation in development of infrastructure culture and education. Mercosur countries signed an Air Services Agreement in 1996, under which airlines of member countries can fly into the international airports of the region freely. The region is binding itself with a web of investments and a growing network of cross-border roads, electricity grids and gas pipelines.

Argentina, Uruguay and Paraguay are dependent upon Mercosur for a large part of their trade while Brazil’s trade with Mercosur’s partners is limited. Intra-Mercosur trade grew from 4 billion dollars in 1991 to 34 billion dollars in 2008.

European Union has signed a cooperation agreement with Mercosur and is negotiating a Free Trade Agreement. But the chances of conclusion of FTA are not bright due to the issue of EU restrictions on entry of agroproducts.

Mercosur and Mexico have concluded a FTA.

Mercosur has signed an Agreement for consultation and cooperation with China and is considering cooperation agreements with ASEAN, Japan and Korea .

MERCOSUR has concluded a PTA with India and is negotiating one with Southern African Customs Union (SACU).

Mercosur and the two associate members namely Chile and Bolivia approved in 2002 a plan for free movement of their citizens and the right to live and work in any of the member countries as part of the integration of Mercosur. This will benefit the 250 million population of the six countries.

Website of MERCOSUR: www.mercosur.org.uy

 

India- Mercosur PTA

This was successfully concluded in March 2005. Preferential duty ( 10-20 percent in most cases) is given to 450 Indian products entering mercosur and reciprocal concession to 450 products of mercosur entering India. List of products in the link below.

http://commerce.nic.in/flac/india_mercosur_pta.htm

 

Andean Community

This regional market, which has an international legal status, consists of four countries namely Colombia, Peru, Ecuador and Bolivia. In April 2006 Venezuela withdrew its membership from Andean Community and joined Mercosur.

The Andean Community has a total population of 100 million with a combined GDP of 453 billion US dollars.

The Community was formed in 1969 but became operational in the nineties with the establishment of a Free Trade Area in 1993 and Customs Union in February 1995. Goods are traded within the Community without any customs duty except some specified items. The Common External Tariff (CET) for imports from outside the Community has a four-level structure of 5, 10, 15, and 20 percent with an average level of 13.6%. CET applies to about 60 percent of the products of external imports. The Community is planning to achieve a Common Market by the year 2005, in which there will be free circulation of goods, services, capital and persons. But the internal problems in these countries in the last few years have slowed down the integration process and the Customs Union is also working somewhat imperfectly.

 

Chile became an Associate member of Andean Community (CAN) on 8 June 2007.

The Associate membership is important for both CAN and Chile. The exit of Venezuela from CAN in 2006 has now been compensated. CAN was in a depressed mood when Venezuela, the richest member left the club to join Mercosur. The Chilean economic stability, growth and success will now inject new life into CAN and make it more vibrant besides inspiring the other members namely peru, bolivia, colombia and ecuador. Chile will be able to use this Association to improve its relations with Bolivia and Peru with whom it has historical border problems. The Chilean president Madam Bachelet attended the CAN summit on 11-14 june in Tarija, Bolivia.
It may be recalled that Chile had left CAN in 1976 when it came under military dictatorship.

Chile is now Associate member both in Mercosur and CAN. It is the only Latin American country which has signed a FTA with China. Chile has signed FTAs with about 40 countries and is pursuing more.

This regional market has got the following institutional framework:

(1)       Andean Secretariat at Lima - This is the executive body, with a full time Secretary General.

(2)     Andean Development Corporation (CAF) at Caracas.

CAF is the leading source of external financing for the Andean Community members contributing more than 40% of their requirements. The annual total credit given by CAF is over two billion US dollars. The credit is given to regional integration projects and financing of international commerce of companies and banks and government projects. CAF has established its reputation as a successful regional fund with strong fundamentals and good credit rating. Indian companies can participate in the tenders of CAF. Information on projects financed by CAF can be seen in the website www.caf.com. Exim Bank of India has extended a dollar 10 million line of credit to CAF.

(3) Andean Court of Justice ( Quito )

This body resolves disputes among member countries.

(4) Andean Parliament ( Bogota )

The Parliament is the policy advisory body.

The Andean Community countries coordinate their policies and speak (or try to speak) with one voice in WTO, FTAA (Free Trade Area of the Americas ) negotiations and in other international fora dealing with commerce. The Community is also seeking to evolve a Common foreign Policy of the member States.

The Andean Community’s home page is www.comunidadandina.org.

 

Union of South American Nations (UNASUR)

The Union of South American Nations (UNASUR) is the latest regional entity in South America. It consists of all the twelve countries of South America, namely, Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Guyana, Paraguay, Peru Suriname, Uruguay and Venezuela.

Mexico and Panama are observer countries.

The twelve countries stated their interest to form UNASUR in the “the Cuzco Declaration” of December 2004. The first UNASUR Summit was held in Brasília in September 2005.At the third South American Summit held in Brasilia on 23 May 2008, Presidents of the 12 countries signed the Treaty under which formation of UNASUR was formalized.

 

Objectives

The objective of UNASUR is to integrate the region and become a collective entity like the European Union. It envisages a single market, common monetary policy, currency, parliament and passport. As part of the integration it has set up Regional Defence Council, South American Health Council and South American Human Rights Council.

UNASUR has established South American Councils to for  Infrastructure and Planning, Social Development, Education, Culture, Science and Technology as well as combating drug trafficking. There are proposals for construction of a South American energy grid and an Inter-oceanic Highway, connecting Atlantic and pacific oceans by road through Peru, Brazil and Bolivia.

 

Structure:

• The headquarters of UNSUR has been established in Quito, Capital of Ecuador

• The Presidents of member nations have annual Summit meeting.

• The Ministers of Foreign Affairs meet once every six months. Mercosur, Andean Community, and other institutions for regional cooperation and integration will also participate in the meeting.

• Sectoral Ministerial meetings and extraordinary Summits will be organized by the Presidents of the member states as and when necessary.

• The Presidency of UNASUR will rotate amongst the member countries every year. Ecuador took over the Presidency from Chile on 10th August 2009. 

UNSUR is rich in agriculture and energy sources and can be a global player in food and energy security. It has 27% of the world's freshwater sources and eight million square kilometers of forest land.

	Country	Population (million)	Area (million sq. km)	GDP Nominal (billion U$D)	GDP per capita	Total Imports (billion)	Total Exports (billion)
	Brazil	192	8.5	1700	10000	173	198
	Argentina	41	2.8	335	7600	70	82
	Paraguay	7	0.41	16	2100	9.4	5.5
	Uruguay	3.5	0.18	31	9800	7	6
	Bolivia	10	1.1	17	1600	5	7
	Chile	17	0.76	169	10000	56	69
	Colombia	45	1.1	242	5400	30	28
	Ecuador	14	0.26	53	3900	17	20
	Guyana	0.76	0.21	0.3	4800	1	0.6
	Suriname	0.5	0.16	0.2	6800	0.8	1.3
	Venezuela	28	0.9	320	11000	47	5
	Peru	28	1.3	128	4400	27	30
	Total	386.76	17.68	3011.5	77400	443.2	452.4

Inter-regional dialogue

60 Heads of State from the 53 African and 12 South American countries attended the first South American and African (ASA) Summit, held in Abuja, Nigeria in November 2008.The Summit called for greater cooperation between the African Union and the UNASUR. The second Summit of South American and African (ASA) countries, wa in Venezuela on 26-27 September 2009.

The South American-Arab Countries Forum (ASPA) of 12 South American countries and 22 Arab countries was established in May 2005. The main goal of the forum is the rediscovery of two cultures which have historic affinities and to promote cooperation among the two regions. So far ASPA has held two Summit meetings, the first one in Brasilia in May 2005 and the 2nd Summit in Cairo in March 2009. Peru will host the Third ASPA Summit in 2011.

 

 

SICA (Central American Integration System)

SICA is an extension of the Central American Common Market which was formed by Costa Rica, Guatemala, Nicaragua and El Salvador in 1963.

Formed in 1991, this consists of seven countries namely Costa Rica, El Salvador, Guatemala, Honduras, Panama, Belize and Nicaragua. SICA has taken Dominican Republic as an Associate Member. This has a combined population of 44 million and GDP of 94 billion dollars. A general secretariat located in San Salvador coordinates the process of political, economic, social and environmental integration. Summit meetings and ministerial meetings are held periodically to give political impetus for the integration process. The Secretariat has prepared a programme of projects for regional development for the period 2001-2020. A Bank for the Economic Integration of Central America has been established. The projects being financed by the Bank include Central American Logistical corridor, Central American Electricity Connection and fibre optic network.

Projects of this Bank can be seen in www.bcie.org.

SICA has established specialized Technical Secretariats for economic integration and cooperation in areas such as education, environment, development, tourism, agriculture and maritime transport. SICA has also established a Parliament and Court of Justice.

SICA has signed (1993) a Framework Cooperation Agreement with EU. In May 2002, the two sides had agreed to start negotiations on an Association Agreement. An Agreement for Cooperation with Mexico was signed in 1991. Member countries of SICA have signed Free Trade Agreements with USA , Canada and Mexico . SICA has plans to open trade negotiations with Mercosur, EU, Andean Community and CARICOM.

SICA has agreed to evolve common negotiating positions in multilateral negotiations such as WTO and FTAA.

In the Summit meeting in July 2005, the leaders had agreed to work towards a common central american passport and common visa . These were agreed among four of the eight SICA countries, namely El Salvador,Guatemala,Honduras and Nicaragua.

For information on SICA see website www.sgsica.org

 

CAFTA (Central American Free Trade Area) Plus DR

This is a Free Trade Agreement concluded between USA and the six SICA countries, namely Costa Rica, Honduras, El Salvador, Nicaragua, Guatemala and Dominican Republic. Also knwn as DR- CAFTA Agreement. After a long period of debate and expression of concerns, the US Congress approved this agreement in the last week of July 2005. This has been ratified by all the countries except Costa Rica.

Under this Agreement, duties will be will be eliminated on most goods( 80 % ) on the date it becomes effective, while in the case of some goods duty will be gradually phased out over 10 years. The Agreement covers all forms of investment including securities, debt, licenses,contracts and dealership.

Central America is an important exporter of apparels to USA. the six CAFTA countries together are the second largest buyer of US yarn and fabric. The average US-content in apparel exported by Cafta-6 to USA is around 70 percent.

Panama has separately concluded a FTA with USA in December 2006.

 

Plan Puebla-Panama

In June 2001, the Central American Presidents along with the President of Mexico jointly inaugurated “Puebla Panama Plan” which includes 17 projects for regional development and connectivity of Central America and Southern Mexico .

This is an integration project to link the physical infrastructure such as roads, rails, communications and power and gas connections from Puebla in Southern Mexico to Panama through all the Central American countries. Already US$ 4.17 billion has been spent on these projects.

Colombia has joined the Plan Puebla-Panama as an Observer in 2004. This means that the linkages will be from Colombia to Mexico through Central America .

 

India- SICA Forum

India-SICA [consisting of eight countries Belize, El Salvador, Honduras, Panama, Costa Rica, Guatemala, Nicaragua and the Dominican Republic –an associate member] meetings are held from time to time at the level of foreign ministers.

India has already set up IT training centers in five SICA countries viz. Panama, Guatemala, Nicaragua, El Salvador, and Honduras and will be setting up IT centers in Belize, Costa Rica and the Dominican Republic. India has offered lines of credit to all the SICA countries.

 

Caribbean Basin Initiative (CBI)

USA has extended trade preferences under this scheme to 24 countries in Central America and Caribbean since 1984. In the eighties traditional and primary products such as coffee, bananas and mineral fuels accounted for majority of US imports from the region. Mmanufactured products such as apparel and machinery amount to over half of CBI exports to USA . The number one export of CBI to USA is apparels.

NAFTA

USA , Mexico and Canada formed this Free Trade Area in January 1994 under the NAFTA Agreement. This is the world’s largest FTA with a population of 406 million people and 12.34 trillion US dollars. Each day the NAFTA partners conduct nearly $ 1.8 billion in trilateral trade.

Under NAFTA, restrictions on trade and investment are to be gradually removed (some immediately, others in 10-15 years) over a period of 15 years. Tariffs on automobiles and Textiles are to be phased out in 10 years. Non-tariff barriers are to be reduced or eliminated. There is binding protection of intellectual property rights. There are elaborate dispute settlement procedures. NAFTA does not have a Common External Tariff like Mercosur and Andean Community.

In some respects NAFTA goes beyond a conventional FTA. Accords, covering issues such as intellectual property rights, reciprocal trucking rights, agricultural inspection standards, and conditions under which professional and financial institutions can access and operate in each other’s markets, have been signed. It incorporates side agreements on labour and environment. But NAFTA does not include movement of labour, government procurement and energy.

Although NAFTA is a three country arrangement, there are many bilateral arrangements. The agricultural protocol between US and Mexico differs from that between US and Canada . There are bilateral commissions (US-Canada and US-Mexico) to settle disputes. There are over 200 pages of ‘Rules of Origin’ and the NAFTA document itself runs into 2000 pages.

 

Trade

NAFTA has been a clear success on the trade promotion objective. The intra-NAFT trade has gone up and accounts for one third of their total trade. For Canada and Mexico intra-NAFTA export represents 85 and 90 percent of total exports and for USA it is 36%.

Canada accounts for 20.4% of US trade followed by Mexico with 12%. On the other hand, Canada has become the second largest market for Mexican goods and Mexico has become the fourth largest exporter to Canada .

 

Impact on Mexico

Thanks to NAFTA, Mexico has emerged as the largest trading nation in Latin America. Many US companies have shifted their production to Mexico . Most importantly the Mexican market has matured and is evolving in the model of USA .

NAFTA has also become an insurance for Mexican economy. For example, when Mexico was hit by a crisis in 1995 after the Peso devaluation, USA put together a $ 50 billion international loan package and rescued Mexico quickly. Mexico took only seven months for recovery. But in 1982, when Mexico had a similar crisis, it took seven years.

For more information visit www.nafta-sec-alena.org

 

FTAA (Free Trade Area of the Americas)

FTAA was an initiative of USA to form a Free Trade Area of the 34 countries in the hemisphere ( Latin America , North America and Caribbean ) except Cuba . This was proposed in the Summit of the Americas held in December 1994 in Miami . The Summit leaders agreed to create a FTAA in which barriers to trade and investment will be progressively eliminated and to complete the negotiations by 2005. The FTAA was to enter into force not later than December 2005. The Miami summit was followed by two other summits: the second one in 1998 at Santiago and the third one at Quebec in 2001. The initial negotiations held at ministerial and official levels were going slow since the Clinton Administration could not get Fast Track Authority which made the Latin Americans skeptical about the seriousness of USA . But the negotiations got a new life when the Bush administration managed to get the Trade Promotion Authority in August, 2002.

 

Free Trade Area of the Americas (FTAA) postponed indefinitely

In the fourth meeting of the Summit of the Americas held in Argentina on 4-5 November 2005, the 34 Heads of Governments could not agree on when and how to resume the FTAA negotiations which have reached a stalemate. The negotiations were started after the first summit in 1994 and deadline was January 2005. The resisitance to FTAA came from Mercosur and Venezuela. The stalemate continues...

If FTAA materializes, it would become a gigantic market of 800 million people with a GDP of $ 13 trillion.

There are nine negotiating groups working on market access, investment, services, government procurement, dispute settlement, agriculture, intellectual property rights, subsidies, dumping and countervailing duties and competition policy.

Under FTAA, import tariffs would be eliminated within a decade and non-tariff barriers such as quotas would gradually be eliminated. Investment rules would also be harmonized.

One of the points of contention is the use of labour and environmental standards for protectionist purposes being advocated by Trade Unions and lobby groups of USA . But the major issue blocking the conclusion of FTAA negotiations is agricultural subsidies. The Latin American countries and particularly Brazil , have been opposing US agricultural subsidies (Brazilian agro exports to USA decreased from 1.9 bn $ in 1989 to just 1 billion dollars in 2001. Mercosur accounted for 8.2% of agro imports of USA in 1989 but in 2001 its share went down to 4%) and anti-dumping measures of USA . Brazilian exports of steel, orange juice, sugar, textiles, tobacco and ethanol face tariff and non-tariff barriers for imports into USA. But the US has been arguing that the issue of agriculture subsidies has to be dealt with in the global context of EU subsidies and in the WTO negotiations.

 

USA signs FTAs with Latin American countries

Without waiting for FTAA, USA has gone ahead with signing of FTAs with individual countries and regional groups of Latin America after having signed NAFTA with Mexico.

  USA-Chile

USA-Chile FTA was signed in June 2003. The Agreement deals with services, intellectual property rights, labour and environment issues besides freeing of trade.

  USA-Central America

USA has signed a FTA with the five Central American countries-Costa Rica, El Salvador, Gautemala, Honduras and Nicaragua. It is called as CAFTA (Central American Free Trade Area). Under CAFTA, tariff and other barriers for trade in goods, services and investment are to be eliminated gradually. In August 2004 USA signed a FTA with Dominican Republic. After this CAFTA has become “Dominican Republic-CAFTA Free Trade Agreement”.

USA has concluded a FTA with Panama in December 2006.

 

USA signs FTA with Colombia and Peru but suspends FTA negotiations with Ecuador

In the first quarter of 2006 USA signed FTA with Colombia and Peru. These would become effective after congressional ratification.

USA has suspended FTA negotiations with Ecuador, in retaliation for the termination of oil contract of Occidental by Ecuadorian government on 15 may 2006.

 

APEC (Asia Pacific Economic Cooperation Forum)

Mexico, Chile and Peru are the three Latin American members of APEC which has 21 countries as members including USA. Colombia and Ecuador have expressed interest in joining APEC. APEC promotes broad trade and investment liberalization. APEC countries have announced that they would become a Free Trade Area by 2010 (for the developed countries) and 2020 (for the developing countries). Around 55% of the Chilean exports go to other APEC members.

 

The implications of Regional Integration for India’s business

Some in India are worried by the ‘trade diversion’ caused by the trade blocs and FTAs. It is true that in some cases, Indian exporters are at a disadvantage vis-a-vis the supplier countries from within trade blocs and FTAs. For example, Indian exporters of rice to Brazil become less competitive vis-a-vis Uruguay whose rice goes duty-free. The Colombian textiles and Pharma products enjoy duty-free advantage over Indian exports to Peru. But the trade ‘diversion’ is compensated by the “trade creation” in Latin America as a whole, which has enhanced the scope for India’s exports. The integration process has reinforced the strength and growth of the individual Latin American countries and made them larger and better markets in the long term. It is a fact that Latin America’s external trade has increased more than the intra regional trade. In any case the intra-regional trade of Latin America is only 17 percent of its total trade. The integration process has made the marketing job of Indian companies easier since they do not have to formulate individual strategies to the 33 countries of Latin America and Caribbean. Indian companies need to formulate only strategies for each regional group.

The FTAs signed by USA with Latin America countries and groups contain some elements which go beyond WTO norms and pose as non-tariff barriers for India’s export of pharmaceuticals to those LAC countries.

India has signed Framework Agreements for Cooperation with MERCOSUR, Andean Community, SICA and CARICOM. India has signed a PTA with MERCOSUR and another one with Chile.