A top World Bank official has launched a passionate plea in favour of free trade and further regional integration in Latin America in what will be seen as a response to protectionist policies emerging from the US.
Jorge Familiar, vice president of the World Bank for Latin America, said there were “many opportunities” for integration in the region. “At the global level, there are questions with respect to trade and globalisation, what we see in Latin America is a renewed effort to look at regional integration,” he said in an interview with Global Markets.
While some policymakers and market analysts have been alarmed by US president Donald Trump’s initial trade policy statements, Familiar said he did not yet see “full clarity on potential policy changes”.
“Volatility is a synonym of risks, and risks needs to be managed, but we need to wait and see exactly where it ends up. I am pretty sure that in a short period of time we will have more clarity of where things will end up,” he said.
Small, open economies such as Uruguay, may be hurt by protectionism. “But we will have to know how far Mr Trump goes,” Danilo Astori, Uruguay’s finance minister, told Global Markets. “The establishment may impose limits.”
Mexican officials have recently said they are prepared for the end of the North American Free Trade Agreement (Nafta) if they cannot reach a deal with the US. Trump has threatened to tax some Mexican imports heavily, although more recent statements from other US officials have been sounded more cautious.
'Tough gets going'
Trump’s strong rhetoric has already had a detrimental impact in some countries. Ramon Aracena, the Latin America chief economist at the Institute of International Finance, said: “The most vibrant economies in the region have put trade at their core, such as the members of the Pacific Alliance [Mexico, Colombia, Peru and Chile]. Their whole strategy is to use trade to supplement domestic demand in order to grow faster for longer.”
Countries must be ready to adapt their strategies, he said. “The only thing you can do is to replace markets, diversify your export market and your export base. It is really hard but you are going to have to do it. When the going gets tough, the tough gets going. There is no escape,” he said. “This may force Mexico to become more competitive, more flexible and learn to live without so much reliance from the US.”
Familiar acknowledged there was clearly a sense of uncertainty but added: “Uncertainty leads to the search for opportunities. I see a renewed interest in trying to understand Asian markets, and how Latin America can serve Asian markets. I am sure many opportunities might arise from this sector.”
Aracena said it was not just protectionism that was at stake, but rather the combination of policies. “If you have the US imposing trade tariffs on some Latin American products and running an expansionary fiscal policy at the same time... If they do that from a position of full employment, you will see a surge in US inflationary expectations, which might force the Federal Reserve to tighten monetary policy faster,” he said.
“So you can have a double whammy there for emerging markets. As one of your main markets is closed and borrowing costs in dollars are going up at a faster pace than you think, that will affect growth across the region. Markets can get nervous and this may get out of control, this is going to be bad,” said Aracena.