Ambassador’s Brief: The U.S. Election And Latin American Relations

By Antonio Garza, U.S. Ambassador (Ret.)

There’s no question we are in the midst of historic change in the world. The international policy agenda has never been more diverse and there’s a lot of uncertainty, punctuated by anxiety, about the direction of change.

In the US, Domestic Concerns Dominate

With a faltering economic recovery and persistently high unemployment, President Obama faces a tough re-election environment. His approval ratings have declined steadily and enthusiasm among Democrats is down sharply compared both to the past presidential election and in relation to enthusiasm among Republican voters (see the latest Gallup data here). The President must run against a Republican party that is unified in opposition to his policies, particularly health care reform, and that is appealing strongly to many Americans’ profound mistrust of government.

Yet Mitt Romney is not a problem-free candidate for the Republicans. The drawn-out primary fight exposed weaknesses in his record (both as governor of Massachusetts and in the private sector) and in his ability to connect with voters. And the candidate’s recent international trip included some missteps that detracted from the statesman-like image he had hoped to convey. Whether his performance on the international stage will change the calculus for his choice of a running mate remains to be seen. It’s clear though that he and the party have a lot riding on his choice, which he will announce first to those who download an app from the candidate’s website.

The November winner will have to deal with what appears to be the new Congressional normal: polarization and political gridlock. The limits of this governing shift away from bipartisanship were all too evident last year, especially during the debt-ceiling crisis. The so-called fiscal cliff-the tax increases and automatic spending cuts due to take effect at the end of the year and in early 2013-calls for an effort at prudent compromise. That possibility seems remote, however, and the domestic and global repercussions of eroding confidence and restricted US growth prospects will be significant, as this backgrounder from the Council on Foreign Relations makes clear.

Mexico: A Bright Spot on the World Stage

That statement might surprise some who do not often look beyond the headlines when it comes to Mexico. Though the country is closely linked to the US economy, its fundamentals are strong and it has weathered the economic crisis relatively well. Prudent policies have helped reduce vulnerabilities and position the economy for growth. Nomura Equity Research recognized Mexico’s economic and demographic strengths and potential when it recently stated that the country will likely overtake Brazil as Latin America’s biggest economy within the next decade. Other analysts have reached similar conclusions.

The numbers on Mexico’s economy tell a positive story of growth (4.6% and 4% growth in the first and second quarters of the year) and expanding opportunity (through newly created jobs, rising levels of foreign investment, and a growing middle class). And though the transition is just beginning to take shape, there is cautious optimism surrounding Mexico’s new president-elect. Enrique Peña Nieto supports structural, pro-market reforms and he has pledged to bring more vibrant growth to the country. It will take a lot more than resolve to bring about the structural reforms that have long been blocked by entrenched interests. But even if the prospects for some of the large-scale reforms (such as opening Pemex to competition and broadening the tax base) are still unknown, even lower profile ones (such as changing regulatory practices) that are more easily achieved could bring strong gains.

Pockets of Uncertainty in Latin America

Latin America has been resilient in the midst of global turmoil and the region has fared better than many expected. That doesn’t mean there are not pockets of concern. One is undoubtedly Venezuela, which on October 7 will hold a presidential election that could determine the future of the country’s politics and that will have significant regional implications.

Hugo Chávez is, as ever, the man to beat. The upcoming election is different, however, and not only because of the president’s uncertain health. This contest includes a credible opposition candidate and, as a recent posting on Foreign Policy’s“Transitions” blog notes, it appears there is a large portion of the electorate that is undecided. What it all means is anybody’s guess, as this recent commentary that lays out possible scenarios makes clear. Another must-read on Venezuela is this posting about economic problems on the horizon.

Brazil has enjoyed a long turn in the spotlight and has for a decade or more been viewed as a model of financial responsibility among emerging markets. The country’s recent economic slowdown, ongoing corruption scandals and the return of protectionist policies, has contributed to a growing wariness about its prospects. This more bearish attitude was outlined earlier this summer in an article that appeared in the journal Foreign Affairs, which you can download here. The same issue included a reasoned response co-authored by the Council on Foreign Relations’ Shannon O’Neill, who summed up her views here, on her blog, “Latin America’s Moment.”

An Unsettled Middle East

It’s been eighteen months since the revolutions in the Middle East began and unrest remains widespread. Dictators have been toppled in Tunisia, Egypt, Libya and Yemen. In Syria, what began more than a year ago as protests against the Assad regime now resembles a civil war. Nuclear proliferation, democratization, security and development are all at stake and policymakers around the world are grappling with these and other pressing issues.

A sobering new report on al Qaeda’s success (despite a lack of broad popular support) in capitalizing on revolutionary change in the Arab world highlights the complexities and dangers of the ongoing turmoil. Also worth reading is an analysis that looks at how China is exerting more soft-power in the region and warns of how it may act to reshape the geostrategic landscape of the Middle East.

Europe’s Woes Continue

The crisis in the 17-member eurozone remains grave. With measures intended to stabilize the Spanish economy bringing no more than temporary relief, the country is likely to require a full bailout. If so, it will follow Greece, Ireland and Portugal down a too well worn path.

Spain’s size and the particulars of its problems pose a worrying threat to policymakers-in Europe and the US. When troubles in the eurozone first arose, many observers argued that the problems would not spread beyond the region. It is now clear that was wishful thinking. Europe is currently seen as the main drag on the US economy, which explains Treasury Secretary Geithner’s trip to Germany in the closing days of July and the US pledge for coordinated action. Emerging markets in Europe and Asia are also at risk, as noted recently in The Economist. For an insightful look at what’s at stake in this ongoing crisis, read “What If Europe Fails?” a report by published this summer in The Washington Quarterly that is available on the Brookings Institution website.

China’s Prospects Dim Somewhat

China’s slowing economy and its upcoming political transition present another set of potential worries for the international economy. I tend to agree with the views expressed in a recent special report in the Economist arguing that China’s economy is more resilient than many detractors believe and that its leaders have the capacity to navigate a challenging environment. However, an increasingly assertive civil society poses a complex set of challenges for Beijing. For insight into the kinds of grassroots movements that have Chinese officials worried, read this post on the International Herald Tribune’s blog View from Asia.

This article was first published in tonygarza.com.

Antonio Garza serves as Counsel in the Mexico City office of White & Case LLP, one of the world’s leading global law firms with 38 offices in 26 countries. Additionally, Amb. Garza is Chairman of Vianovo Ventures, a management consultancy with a focus on cross-border business development. From 2002 to 2009, Garza was the U.S. Ambassador to Mexico.