U.S.–Latin America Relations: Policy Review and New Direction

Introduction and Thesis Overview

This is a review of A New Direction for a New Reality, by Charlene Barshefsky and James T. Hill (2008), published by the Council on Foreign Relations, Inc.

This report takes into account the current state of affairs in Latin America along with the opportunities and challenges that govern relations between the U.S. and Latin American society. Latin America has in the recent past adopted many of the democratic values that characterize governance in the U.S. There is increased democratic space and a wider scope of economic activity, and many Latin American countries are actively pursuing these changes to strengthen their democracies, expand economic participation, and deliver better services to their citizens.

It is noted that Latin American nations face several daunting challenges in the course of integrating into global markets—challenges of great significance to the U.S. The economic and social ties that bind the U.S. to the region connect its future to the stability, development, and well-being of the entire hemisphere. The report is not an attempt to exhaustively study U.S.–Latin America policy relations, nor does it analyze the long-standing bilateral relations between the two entities in depth. It does not pursue any single U.S. approach to the complexities of Latin America through one dominant position or idea.

Key Challenges and Strategic Relationships

The report seeks to expand on four critical areas it identifies as important to ongoing developments, and highlights four relationships it deems strategic for special attention. Inequality, poverty, security, energy security, and human mobility pose serious challenges to the people of the region and to the relationship between the U.S. and Latin America. These factors sit at the heart of U.S. policy promoting democracy, fighting narcotics trafficking, and advancing economic expansion. They also touch on emerging policy issues arising from the broader integration of western societies.

The task force recommends stronger U.S.–Mexico and U.S.–Brazil relations, and calls on the U.S. to redefine its relationships with Cuba and Venezuela. If the U.S. intends to make a meaningful impact, it must pursue its policies by helping Latin American countries build and strengthen their democratic institutions. These institutions will in turn help those countries address the challenges outlined in the report. The U.S. should therefore work collaboratively with multilateral agencies and organizations such as the World Bank, the IMF, the Inter-American Development Bank, the IFC, and the Organization of American States (OAS). Continued cooperation with civil society groups will give rise to home-grown solutions that are more readily accepted and adopted by local populations. The result will be that U.S. policy goals are satisfactorily achieved while Latin American people benefit from the partnership.

Improving the lives of Latin American people and strengthening their institutions is an ambitious goal that demands long-term strategic planning from all stakeholders, and especially from within Latin American society itself. The role of the U.S. in supporting these efforts is significant. Expanding its policy focus and building strategic partnerships in the region will promote U.S. interests while bolstering stability, prosperity, and security throughout the hemisphere.

Evidence and Data Sources

The report draws on two primary and four secondary sources. Data from the Economic Commission for Latin America and the Caribbean (ECLAC Statistical Yearbook, 2007) is used to compare the so-called "lost decade" of the 1980s and the disappointing economic growth rates of the 1990s with more recent performance. Through this data, the authors observe that Latin American economies performed strongly in the early 21st century, recording 5–6% growth in 2007 and over 4% growth for the fourth consecutive year—the strongest performance in the region since the 1970s.

In evaluating economic relations between Latin America and the U.S., the authors draw on a study by Hornbeck (2007) to examine current trends. The data shows that from 1996 to 2006, U.S. exports to Latin America grew by 139%, compared to 96% growth with Asian partners and 95% with the European Union. The U.S. exported goods worth $223 billion to the region in 2006, compared to $55 billion to China. Furthermore, Latin America is the largest single source of oil imports for the U.S., accounting for approximately 30% of total oil imports compared to 20% from the Middle East. Disconcertingly, Latin America is also the largest supplier of illegal narcotics to the United States. The combined effects of narcotics trafficking and rising U.S. labor demand have contributed to heightened rates of migration from the region.

The authors use Guillermo et al. (2006) to demonstrate the effects of poverty and economic imbalance on Latin American populations. They conclude that economic inequality and poverty have hampered governments' ability to deliver effective public services. Public security remains a serious concern, perpetuated by the cycle of poverty and inequality. The World Bank estimates that a 10% decrease in poverty levels can raise economic growth by one percentage point, while the reverse—an increase in poverty—can reduce investment by up to 8% of GDP.

The authors also draw on Tejerina et al. (2006) to explain the vulnerabilities facing Latin American countries and their citizens. Only 14.5% of poor people in the region hold a savings bank account, and only 3% have access to credit from a financial institution. This exclusion prevents the poor from accumulating assets, leveraging entrepreneurial skills, or managing financial risk effectively. The authors additionally utilize the OECD (2006) report on the Latin America Economic Outlook, which highlights that the region's tax systems are regressive and over-reliant on VAT, with little mix of corporate income taxes, personal income taxes, or property taxes. Poor collection rates compound the problem: Latin America collects only around 17% of GDP in taxes, compared to the OECD target of 35%. This structural weakness limits the financial resources governments need to combat poverty.