Economy threat mars US charm offensive
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Emerging Markets

Economy threat mars US charm offensive

Downturn warnings intensify as Shannon appeals to Latin countries

Latin America faces the biggest US government effort in years to change the dynamic in the hemisphere – just as experts are warning that the US economy could be on the verge of a downturn, which could have devastating consequences for the region. 

Thomas Shannon, US assistant secretary of state for Latin America, told Emerging Markets this weekend that US policy towards the region has matured into a more inclusive approach that puts social as well as economic issues at its core.

“What you are seeing is the emergence of a US that recognises the social agenda of Latin America ,” he said, just days after president George W. Bush wrapped up what some are calling a “charm offensive” five-nation tour of the region.

In an effort to build on the momentum of Bush’s tour, US Treasury Secretary Henry Paulson will visit Guatemala today before heading off to Peru .

But Washington ’s plans for the region are overshadowed by warnings that the US economy may be close to a recession, and that the US Congress may block free-trade pacts with three friendly Latin governments. Criticisms are mounting over internal US policies, on issues such as migration.

Guatemalan vice president Eduardo Stein told Emerging Markets in an interview: “A possible bust in the US economy would be devastating for Guatemala and Central America in general. Almost 80% of our trade is with the US .” 

Markets are subjecting the US economy to closer scrutiny following remarks by former Federal Reserve Chairman Alan Greenspan of a one-third probability that the US economy could enter a recession.

Analysts say the economy is slowing. Gerard Lyons, chief economist at Standard Chartered, said: “The US [economy] is losing momentum, there is no doubt about it.” Charles Dallara, managing director of the International Institute of Finance, said: “The return to volatility is very much part of the concerns on the US economy. Obviously we could be in for a weaker 2007.”

Another factor that could undermine US influence in the region is the danger that trade pacts with friendly nations will not be ratified. Foremost of these is the Peru Trade Promotion Agreement, signed nearly a year ago in April 2006 and ratified by the Peruvian Congress last June.

If the Peru deal falls, that will be a boon for Venezuelan president Hugo Chavez and his alternative free-trade plan for the region, ALBA. 

Shannon said the administration “fully expects” Democrat-led Congress to approve the deal, and similar pacts with Colombia and Panama . But the process is taking far longer than had been hoped.

Peru ’s former prime minister Pedro Pablo Kuczynski said that any decision to reject or put off indefinitely these agreements would be hugely disappointing. “I don’t think this is an issue with Latin America , but a problem between Democrats and Republicans. The impact, however, would have lasting repercussions on the region.” 

Nicaragua ’s finance and public credit minister Alberto Guevara told Emerging Markets that he sees no conflict between being a member of ALBA and the free-trade pact with the United States and other Central American governments, CAFTA.

During the Guatemala and Mexico stops on the Latin America tour, the Bush administration’s new understanding of the region’s social agenda ran into a roadblock because of its immigration policy. Police raids had targeted illegal Guatemalan immigrants in Boston just before he arrived.

Guatemalan vice president Stein said: “The security agenda has impacted negatively on migration. We understand the decision of the US based on sovereignty, but we insist that there has to be co-responsibility in the region.” 

Stein called for a broader definition of security that not only looks beyond the hot-button issues of drug trafficking and terrorism, but also brings in questions of economic and political security.

 

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