Even before the start of the Fifth Summit of the Americas in Trinidad and Tobago this month, U.S. President Barack Obama began a new chapter in his county’s relations with Latin America. A week prior to the meeting, Obama made a political nod toward the region by lifting restrictions on travel and remittances to Cuba. Nevertheless, U.S.-Latin American relations were not the only pressing topic during the meeting of the region’s 34 leaders: Latin America is focusing its attention on overcoming the current economic crisis and avoiding any chance of another lost decade like the one it experienced during the 1980s. Juan José Toribio, a professor at the IESE Business School and executive director of the International Monetary Fund from 1996-1998, and Riordan Roett, a professor in the international relations program at the Instituto de Empresa Business School, spoke with Universia Konwledge@Wharton  about the political and economic realities of the region.

Universia Knowledge at Wharton: It has just been announced that U.S. President Barack Obama has lifted restrictions on travel and the sending of remittances to Cuba. The gesture came in the lead up to his participation in the Fifth Summit of the Americas that took place in Trinidad and Tobago. How would you interpret this move?

Juan José Toribio: That was totally expected. During the Bush administration, perhaps this could not be carried out because of connections with the most radical Cuban exiles in Miami. Sooner or later, [Obama] will have to lift the embargo totally with Cuba, not because the regime of Fidel Castro merits any sympathy, but because history has demonstrated that the most efficient way to make the Cuban regime evolve is not to try to suffocate it with economic embargos. I believe that this is a positive move that will be followed by others that lead to a total lifting of the embargo, but this does not imply any support for the Castro regime.

Riordan Roett: This move reflects President Obama’s commitment to change and his policy on Cuba [as] stated during his campaign. It is a long-overdue decision. It fulfills a campaign promise, but it also begins to meet the [Latin American region’s] demand for fuller engagement with Cuba by the U.S. The principal issue — the
embargo — is a delicate one. It involves U.S. domestic politics and it is ultimately a decision for the U.S. Congress to make. Very often, it seems the governments in the region believe Obama can cancel the embargo with an executive order. He cannot. There are limits to his authority in this regard. Since this is often not the case in Latin American governments, there needs to be greater empathy for Obama as he explores ways to respond to Latin American interests in reintegrating Cuba into the region without creating a time bomb for Obama in Washington, D.C.

UKnowledge at Wharton: What do you think Latin America expects of the new U.S. administration?

J.J.T.: The United States has laid out its priorities in such a clearly defined and intense way in other regions of the world, such as the wars in Afghanistan and Iraq and the war against Al Qaeda. In so doing, Latin America was relegated to [a lower status] in terms of priorities. What the Latin American countries hope is to again occupy the privileged position that they once had with regard to the attention that the U.S. gave them. Although Latin America is not homogenous, I believe that everyone has this feeling that the Bush administration had abandoned them a little, and they hope to reestablish with Obama what had been “ordinary” U.S. foreign policy.

R. R: Given the twin deficits of the U.S. — fiscal and trade — [Latin America does not expect] a great deal. A greater use of multilateral institutions would be appreciated. Respect for different forms of democratic governance is long overdue. An effort to restart the Doha Round at the WTO would be welcome. And a concerted effort by the U.S. to work with Mexico and its neighbors to stop the flow of guns into Mexico; to interdict the chemicals that are sold to guerrillas in South America to process cocaine; and to consider ways to attack laundering of drug money in U.S. and EU banks.

UKnowledge at Wharton: The first foreign premier Obama met with as president-elect was Mexican President Felipe Calderón. Lula da Silva was the first Latin American premier to meet with Obama after he assumed his duties as president. Has Obama pledged to focus on relations with Mexico and Brazil within the Latin American region? Why? What do you think about that strategy?

J.J.T.: Those are the two countries that have the most political weight, not just economic weight, and the largest populations. Meeting first with the Mexican president appears to be a tradition, the way Bush did; he stressed that this was the first meeting that he had as president. Obama has continued this tradition. This makes quite a lot of sense because [Mexico] is a member of NAFTA [the North American Free Trade Agreement], and it is a neighbor that has maintained close relations with the U.S. It has a common border and shares the problem of the huge illegal immigration from Mexico to the United States.

The priority of relations with Brazil can be explained by the growing importance of that country in the world as part of the BRIC countries [Brazil, Russia, India and China]; the speed of its growth; the success that it had in overcoming the crisis in 1998; and the diversification of its economy. It was anticipated and sensible for the United States’ commitment to Latin America to begin with those two countries.

R.R: There is no doubt the Obama White House will be a great deal more engaged in the region. The signals were clear in his meetings with the presidents of Mexico and Brazil. These are the two largest economies in the region, and it is logical for Obama to establish strong rapport with them at the beginning of his administration.

UKnowledge at Wharton: The main theme of the Summit was reflected in its title, "Ensuring the future of our citizens through the promotion of human prosperity, energy security and environmental sustainability." Are these currently the key issues in Latin America?

J.J.T.: This title was politically correct. We should look at what is behind those terms. Energy security and environmental sustainability are universal problems around the world, not just in Latin America. The current priority in Latin America must be to overcome the current economic crisis. But [the outcome] must guarantee sustainable growth. This means not just overcoming the crisis in any way possible, but doing it with economic diversification because Latin America cannot continue to depend exclusively on the exploitation and exportation of its natural resources. It must also be done with social cohesion, including such things as the protection of social services, health and education — and the battle in some countries, in particular, against extreme poverty in accordance with the Millennium Development Goals [agreed upon in 2000 by the members of the United Nations]. If all of this is what they mean [in the summit’s title] when they say “the promotion of human prosperity,” we have to agree that those are the key areas of concern for Latin America.

R.R: The key issues in the region are financial stability, given the banking crisis in the U.S and the EU; poverty and social inequality; a lack of competitiveness due to poor-quality education, infrastructure, etc.; and [the need for] democratic governance that represents the interests of a majority of the region’s citizens.

The average Latin American has little time to think about energy and environment if he does not have a job; if he lacks a social security and retirement program; if he or she is working in the informal sector with no access to credit; malnutrition, etc. Once these issues are addressed, then we can talk about "human prosperity.”

UKnowledge at Wharton: What are the main problems the economic crisis has brought to the Latin American region? What measures are being put into practice to combat them?

J.J.T.: Generally speaking, the impact of this crisis is going to be very serious. First, because of the significant fall in the consumption of natural resources, which means many countries will suffer a decline in exports and in their rate of economic growth. Within a few days, the International Monetary Fund (IMF) will publish its economic forecasts for the various regions — the World Economic Outlook. We will see what the results are, but in an update in January, [the IMF] already forecast a negative growth rate for Mexico; a very low [positive] rate for Brazil, and the same thing for Argentina. In many countries, the crisis will also have an impact on government budget balances [and] the balances in the public sector, which in many countries are related to exports of natural resources. The situation is reflected in unemployment rates. The crisis is a more serious threat than was first thought. Multilateral institutions such as the Interamerican Development Bank (IDB), the IMF, and so forth, must use the new resources that they have been provided by the G20 to turn their eyes toward [Latin America].

Most countries seem to be on the defensive. Many are aware that the solution must be found in [further] coordination with multilateral institutions. It is very hard for each of these countries to establish economic policy measures that [help themselves as well as their] neighbors. Fortunately, these institutions are endowed with more resources, and we will have to see to what extent they are capable of diverting resources to these economies, in addition to jointly pursuing economic policies for overcoming the crisis and guaranteeing sustainable growth.

R.R: World demand for Latin American exports has dropped sharply. FDI has fallen off. Because of the U.S. financial crisis, remittances back to the region have fallen and many Latin Americans are returning home with little prospect for employment in the short term. The best antidote for the region is a healthy U.S. economy. Obama understands this. His government is working to produce a feasible and realistic response to a crisis that he inherited from previous U.S. administrations.

UKnowledge at Wharton: In recent times, countries like Iran, Russia and China have intensified their relations with Latin America. What are the different political and economic interests that these countries have in the region? What real weight do these countries carry in Latin America?

J.J.T.: China is desperately looking for natural resources on the continent. China’s development is based, above all, on its export sector, and so it needs to maintain low costs, and to guarantee an incoming flow of natural resources. China is trying to reach bilateral agreements with various Latin American countries and is making relatively significant progress with some of them. Latin America also depends to a growing extent on China; it is a situation of mutual dependence. Russia and Iran can have different interests [from China] because their economic structures are different from China’s, and Russia is also a producer of natural resources. [Russia’s] game is more political. When it comes to economics, [Russia] is aiming to forge agreements with Latin American producers of oil so that it can work jointly on prices for petroleum and natural gas. Russia also has a clear political interest in showing its flag in the Caribbean, as it did in the past in Cuba. However, it does not seem that things are going much beyond that because we no longer live in the world of the Cold War.

R.R: So far, [these countries don’t carry] much weight [in the region]. Chin has been very important as a trading partner. China and Brazil, in the context of the BRIC concept — Brazil, Russia, India and China — have worked together on a number of multilateral issues. The Iranian and Russian presence appears to be a holdover from the years of the G. W. Bush administration, when there was strong animosity between the U.S. and Russia and Iran. That appears to be changing quickly with the arrival of Obama in the White House. His conversations with the president of Russia have been extremely cordial as have Secretary of State Clinton’s meetings with the Russian foreign minister. While not as successful, the White House has initiated a series of initiatives to engage with Iran.

I expect that China will be the most relevant player in the region, given its continuing demands for natural resources and commodities and its commitment to "South-South" diplomacy.

UKnowledge at Wharton: Some political analysts say that there are two axes of influence in Latin America: One revolves around Brazil and the other around Venezuela. How do you think this affects political and trade relations in the region?

J.J.T.: I would not say there are two axes. The case of Venezuela is special. It is a country of a populist character, with very limited respect for democracy and democrat rights, and it is very committed to what they call a “revolution,” but it is more of a populist movement of the sort that the continent has witnessed in other political periods. That movement has brought together [Venezuela with] Ecuador, Bolivia and perhaps Paraguay a bit. It is an axis, but I believe that it won’t last long. This way of thinking has no viability in the current world, and it will last only as long as the Chávez government exists in Venezuela.

I don’t believe that Brazil is trying to create any axis in the sense that Venezuela is doing that. Throughout South America, Brazil sets the standard for other countries because of its economic importance.

R.R: It is easy to speak of two axes, but it is not true. The Correa regime in Ecuador is very different from Kirchner in Argentina. Venezuela is a "lone wolf" that no one wants to disturb but few want to embrace. Brazil is a natural leader in a number of initiatives in South America — UNASUR, etc. — and that is now widely recognized.

Venezuelan initiatives depend on oil dollars. Those are far fewer today than two years ago. Chavez will not be able to meet many of his commitments in the region, and the growing authoritarian nature of his regime will be anathema to most of the governments who are attempting to build stronger democratic institutions, not less so.

UKnowledge at Wharton: What is the current status of ALCA (Acuerdo de Libre Comercio de las Américas), promoted by Bush administration? Do you think that ALBA (Alternativa Bolivariana para los Pueblos de Nuestra América), promoted by Chávez, has eclipsed ALCA?

R.R: ALCA, as it was born in 1994, is dead. Times have changed, leaders have changed and the world has changed. What appeared to be a reasonable approach to regional integration and development was undermined by the failure of the "Washington Consensus" in the 1990s and early years of the 20th century.

ALBA needs Venezuelan money. There isn’t very much available nowadays. The other members are poor countries with little money to proceed with the ALBA plan.

UKnowledge at Wharton: What do you think the policy will be with regard to trade agreements in the current economic climate?

R.R: As discussed in both bilateral and multilateral meetings, President Obama is positive with regard to restarting the Doha Round of the WTO. But that will take concessions on both the side of the G7 industrial countries and the G20 developing countries.

The emergence of the two "G20s" is a good sign of the maturing of the region’s approach to diplomacy and world affairs. The G20 trade group wants a level playing field – that is, a reduction or cancellation of tariffs and other measures that preclude developing country agricultural exports from entering G7 markets. The G7, in turn, have a strong argument that the developing countries need to be more forthcoming on important policies such as Intellectual Property Rights. Brazil and India are both leaders in the G20 and that means that the negotiating process will need to broaden and deepen over the next few years to accommodate the policy interests of the emerging market countries.