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
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
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, slows.
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
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
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
"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
"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 possible.
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
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.