By Taimur Ahmad
When attempting to describe the ideal relationship between his
country and the US, Argentina's Guido di Tella, then ambassador
in Washington, once said that what he really sought was "carnal
relations" between the two nations.
Times have changed since 1989.
Today, it is hard to imagine such a quip being made by any
Latin nation - let alone Argentina. Perhaps even less
conceivable is the merest hint of intimacy with Washington from
capitals in region.
Indeed, the relationship - both political and economic -
between the US and much of the region to its south is
unrecognizable from a quarter of a century ago.
While Wall Street has become ever more engaged with Latin
America's companies and financial markets, the relationship
between the states has suffered from over a decade of what many
see as benign neglect by Washington.
US influence in the region has also been in relative decline
following a period of unprecedented economic growth for Latin
America, where the region has diversified its trade ties and
seen the advent of a new era of political leaders only too
happy to challenge US influence, while championing regional
For Nicholas Brady, US Treasury Secretary from 1988 to 1993,
such a decline in regional relations is not only regrettable,
In an interview with LatinFinance, Brady - the architect in
1989 of the Brady Plan to restructure Latin American and other
less developed country debt - says that a rapidly changing
global economy demands that the relationship between the two is
once again prioritized. "It is clearly in the US's economic and
political interest to give Latin America more importance among
its global priorities," he says.
"Both sides would benefit greatly if the relationship
graduated from its current 'backyard neighbor' status to that
of important strategic partners on a much broader set of issues
shaping global political and economic trends."
This is especially true as the US economy starts to recover,
five years on from the global crisis - and as China, the main
force behind Latin America's growing economic independence,
The region's trade with China, which has surpassed that
between the Asian country and the US, is worth over $250
billion a year, more than a 20-fold increase since 2000.
But Brady warns that "the dependence of many countries on
commodity exports to Asia could become problematic as China's
economy slows." Moreover, he says, "the economies of the region
are substantially linked to the global economy - which has
shown a decidedly mixed performance."
Such a détente between Latin America and the US
could, therefore, be born of necessity, especially if the
region's principal trading partner diminishes while America's
economy regains its footing.
But for that to happen, many Latin American countries will
also have to overcome a number of legacy concerns. While
bitterness over US political interventions in domestic affairs
over past decades still rankles many nations, reverberations
from the so-called Washington Consensus of the 1990s - the set
of liberal economic reform policies championed principally by
the IMF and the US Treasury - are still being felt in the form
of populist politics across the region.
"The region's politics will reflect the prevailing economic
conditions," says Brady. But he notes that the region's most
successful economies - including Brazil, Mexico, Chile,
Colombia and Peru - "are in fact following a pro-democratic,
free market policies path.
"The citizens of these economies have now been able to
observe how such policies can greatly benefit the people as
millions across the region have moved up and into the middle
class," he says.
Such a perspective should also allow them to see "the
limitations and failings of anti-market, anti-investment
populist policies being pursued by some Latin American
countries," he says, singling out Argentina and Venezuela.
Brady points out that it was precisely the adoption of
free-market reforms that set the stage for the region's
subsequent boom - and resilience in the face of the global
economic crisis. "Economic principles and policies that formed
part of the Washington Consensus were successfully implemented
in many Latin American countries," he says. Indeed, one could
argue that the original Washington Consensus was the Brady plan
itself - without which market-based reform would not have been
As it happened, Latin American nations would years later
revel in buying back their Brady bonds, in some cases making a
political point of reducing their foreign liabilities.
If there were ever a surer testament to Brady's sentiment
towards Latin America, it is in what he says is his biggest
regret: "That George H.W. Bush [US president between 1989 and
1993] was not re-elected. He had the courage to give his full
support to our Latin American efforts where others were
Despite what he sees as wavering US support for the region
in subsequent years, he notes that bilateral trade is one area
that has notched up notable successes. "The bilateral free
trade agreements put in place between the US and Mexico, Chile,
Peru, Colombia and Panama, and the CAFTA-DR for Central America
and the Dominican Republic, have brought about mutual
benefits," Brady says.
Today, Brady sees most Latin American economies as
"fundamentally sound" and the region "much less vulnerable than
it was 25 years ago, with foreign exchange reserves at an
all-time highs, moderate inflation and solid banking systems,"
he says. "The region is second only to Asia in terms of its
But he warns that an incipient recovery in the US still has
the potential to cause trouble for the region and emerging
markets more broadly.
"The immediate problem today is the so-called carry trade
where speculators borrow at low interest rates in the US and
invest at high rates in the emerging markets," he says. "As the
Federal Reserve raises interest rates in the US, there could be
a huge rush for the door in emerging markets. Hopefully
everyone is forewarned."
What's clear, then, is that no matter the state of
diplomatic relations, Washington will continue to wield
considerable power in its former backyard - one way or another
- for some time to come. LF