The Summit of the Americas—Memo to Obama

The Summit of the Americas—Memo to Obama 
April 15, 2009
Alvaro Vargas Llosa

WASHINGTON—Memo to President Obama:

The Summit of the Americas taking place in Trinidad & Tobago this week will be your first trip to the Latin American region. Here are some thoughts:

Since Latin America and the Caribbean are still bitterly divided over what social model to adopt, you might point out to your counterparts that Trinidad & Tobago is more than just a meeting venue. It is a model of sorts. Its parliamentary democracy and market economy have given its inhabitants a per capita gross domestic product 50 percent higher than that of Venezuela, another oil and natural gas-producing country situated nearby.

The recessionary trembles that Latin American and Caribbean nations are experiencing had their epicenter in the United States. The drop in exports, investments, remittances and access to financing has put an end to six years of economic growth that lifted some 40 million people out of poverty in Latin America—although the burgeoning middle class is still more “low” than “middle.”

No wealth transfer scheme did this—not the Inter-American Development Bank’s $7 billion worth of annual credits, not George W. Bush’s doubling of aid to Latin America, not the International Monetary Fund, which has been effectively “exiled” from the region. Regardless of the growing pressure to “reflate” Latin America’s economies via multilateral financing, no Alliance for Progress redux will put these countries back on track. Only the recovery of the U.S. economy and a continuation of the reform process that stopped at the end of the 1990s will do that.

You should persuade your counterparts of two things: First, that the U.S. will not behave like a banana republic in using fiscal and monetary effort to end the recession and restore the health of the financial system; second, that Latin leaders need to reform their pachydermic states in order to catch up with recently developed nations. Latin America could have done better during the recent commodity boom: Since 2001, its annual economic growth has averaged 3.6 percent, less than Africa’s 5.8 percent and the Middle East’s 5.2 percent. Investment rates have averaged 20 percent of GDP compared to Africa’s 25 percent. In the last decade, despite periodic backtracking, China and Vietnam kept up their reform momentum while Latin America rested on its laurels.

You have decided that your Latin American policy will rely heavily on Brazil keeping the South American neighborhood reasonably quiet. Don’t bet on it, but avoiding U.S. engagement in Latin American squabbles is still a good idea. You also want to beef up the ethanol partnership with Brazil. The best way to do this is to eliminate the 54 percent tariff that makes Brazilian ethanol imports prohibitively expensive in the U.S. You have enough political capital to pick a little fight with corn growers in Iowa.

But there is another problem. The Tupi oil field—the largest discovery in the world for a decade—means that Brazil is now embarked on an energy path that runs contrary to your aim to reduce reliance on foreign oil. Given the freeze in capital markets, Brazil will not be able to develop Tupi soon, but the U.S. might end up buying oil from Brazil, perhaps replacing Venezuela as a source of 11 percent of its crude imports. Bear that in mind.

Try to avoid the “Cubanization” of the summit. Your decision to lift restrictions on travel and remittances to Cuba for Cuban-Americans should give you room to avoid falling into the trap of turning the summit into an operatic confrontation on the Castro regime. That is what Venezuela’s Hugo Chavez will attempt to do. The discussion about the half-century embargo should not take place in the context of a political ambush by Chavez.

---

Alvaro Vargas Llosa
Send email

Alvaro Vargas Llosa is Senior Fellow of The Center on Global Prosperity at The Independent Institute. He is a native of Peru and received his B.S.C. in international history from the London School of Economics. His weekly column is syndicated worldwide by the Washington Post Writers Group, and his Independent Institute books include Lessons From the Poor: Triumph of the Entrepreneurial Spirit, The Che Guevara Myth: And the Future of Liberty, and Liberty for Latin America. 

Full Biography and Recent Publications

---

(c) 2009, The Washington Post Writers Group

---