The Count: China edition

19.3...

...is the percentage of total Latin American and Caribbean exports that will go to China in the year 2020. And before you ask: no, maladjusted is NOT clairvoyant...... or at least not yet.

According to a study prepared by ECLAC the world's workshop will soon also surpass the European Union as the second largest destination for Latin America and the Caribbean's exports. The graph below shows the share of the region's exports that go to its top three markets. The key take away here is that over the last ten years the region is significantly less dependent on US markets than before and that China has rapidly become an important alternative destination for exports.

[Latin America and the Caribbean: top three export markets share of total 2000-2020 (percentages)]

Of course, the U.S. will continue to be the region's main export market but it's relative importance will have dropped tremendously, from 38.6 percent in 2009 to 28.4 by 2020. The EU's share will more or less stay the same while China's will continue its impressive increase, from 7.6 percent in 2009 to 19.3 in 2020.

Yes indeed, while the US and EU were stuck in a severe recession last year, China's economy still grew 8.7%. Also, while the value of exports to the US and EU plummeted 26 and 28 percent, respectively, the value of exports to China actually grew 5 percent.

Significantly, the assumptions underlying ECLAC's projections don't require Chinese demand for the region's products to continue growing at the same pace. As the report notes:

"If demand for our products in the United States, European Union and rest of the world continues to grow at its current pace, and assuming that Chinese demand only grows at half its current pace, China would surpass the European Union in 2014 and would become the second largest market for the region's exports."

As can be seen below, China already represents a key export market for many Latin American countries. 13% of Chile's exports go to China, followed by Peru, with 11% and Argentina, with 9%.

[Latin America and the Caribbean: Asia-Pacific country/regions average export shares 2006-2008]

But what's more, it attained this huge share of Latin American exports very, very, very quickly. Between, 2000 and 2008 it climbed from being Brazil's 12th largest export market to being number one. For Costa Rica it went from being 26th to second. Chile: from 5th to first. Colombia: 35th to fourth. Venezuela: 37th to third.

But there's a downside to this story. The pattern of trade between China and Latin America and the Caribbean is not very encouraging. With a few exceptions, the region is only exporting raw materials.

[Latin America and the Caribbean: technological content of exports to China, 1995-2008]

Not much of a clear trend in this one, except for that big blue space at the bottom. Yup, that shows the share of raw materials in total exports to China increasing.

So in the end, if these projections hold up, by 2020 Latin America and the Caribbean will be less dependent on US markets and much more dependent on Chinese ones. It would be nice if the moral of the story was that trade between developing countries meant a better pattern of trade for the region, but so far this doesn't seem to be the case. There are some exceptions though. For instance, virtually all of Costa Rica's exports to China are high-tech goods. Mexico also exports a large amount of high-tech manufacturing. But at the end of the day these are just exceptions.

IMF backpedals its endorsement of capital controls

Maladjusted's readers may know that after being snubbed by developing countries because of its horrible policy advise, the IMF had a midlife crisis and was forced to do a little soul searching. But right when it was on the brink of utter irrelevance, the global financial crisis hit and the ailing institution was given a new lease on life. In the process, headed by french "socialist" DSK, the IMF began reevaluating many of its long held dogmas.

Most recently, the IMF came out in favor of using short-term controls on capital inflows. This was considered a BIG FUCKING DEAL, and rightly so, but the details of how this would translate into actual policy were anything but clear. So now it shouldn't exactly come as a surprise that the IMF seems to be softening it's support for capital controls--that is, taxes and restrictions on moving capital across national borders.

A little background might be in order.

Throughout the '80s and '90s, the IMF encouraged developing countries to liberalize their financial markets and to do it fast. Free market types basically believed that doing this would promote the efficiency of financial markets, channeling funds to where they were needed most and thus leading to better economic growth.

Well, at the beginning of the '90s many developing countries began to liberalize and, due to a combination factors, were faced with massive inflows of foreign capital. To simplify, the US Fed had pushed interest rates down to help the US recover from a recession, prompting investors to look elsewhere for places with higher rates. At the time, Latin America was just such a place. Moreover, apart from having high interest rates, most countries in the region had spent the last decade--the lost one--pursuing neoliberal reforms that investors perceived favorably.

In any case, countries that had been cutoff from international capital markets for years suddenly experienced a huge surge of foreign capital inflows. The problem, however, was that when it comes to capital flows you really can have too much of a good thing. It quickly became apparent that these large flows of foreign capital carried significant risks and posed a challenge to macroeconomic management.

One side effect of capital inflows is that it puts pressure on your currency to appreciate and for many of these countries, which were pursuing an export-led development strategy, this was a big problem.

Many of these countries were also concerned with a loss of monetary policy independence, meaning that the abundance of foreign money was pushing interest rates down despite the wishes of central banks to keep them high in order to fight inflation.

Policy makers were also concerned that these large inflows could make countries more vulnerable to financial crises. In particular, Latin American banks took advantage of all this cheap foreign money and borrowed excessively short-term and in foreign currencies, which put them at risk if the inflows were to stop and the currency to collapse.

The point of this story is that one country in particular managed to juggle all these problems quite well and it did so using capital controls. This country also happens to be the free market darling Chile (Colombia and Brazil have used similar controls with varying degrees of success).

Another famous success story comes from Southeast Asia during the Asian financial crisis. Facing massive capital flight, Malaysia broke with the IMF and imposed temporary controls on capital outflows to prevent it's economy from collapsing. Its economy proceeded to recover rapidly.

Whatever. So now, in spite of mounting evidence and it's own endorsement, the IMF is warning that capital controls could cause significant distortions:

"Since the use of capital controls is advisable only to deal with temporary inflows, in particular those generated by external factors, they can be useful even if their effectiveness diminishes over time... However, the decision to implement capital controls should consider their distortionary effects not just on the individual country, but also on the global economy in the event their use were to become widespread."

To be fair, there's nothing wrong with this statement. Controls on capital inflows shouldn't be used as an excuse to avoid pursuing meaningful macroeconomic adjustments and if controls become widespread they might slow global recovery (a rather large claim backed by little evidence). But it's clear that there are actors within the IMF trying to prevent capital controls from becoming standard policy. So before we rush to the conclusion that the IMF is seriously reconsidering it's long-held policy stances, we should wait to see how it's endorsement of capital controls translates into actual policy.

A New "Virus" Hitting the International Scene?

Yesterday the New York Times "Idea of the Day" blog should have simply taken the day off, without further ado:

Today’s idea: Venezuela, Iran and Russia together pose a serious threat to American objectives worldwide, a foreign affairs scholar writes, dubbing the combined peril the “Virus.”

Really New York Times? Really? They must have just been sooo happy that they now have a new name to call these countries, a new "axis of evil", ooooh so media-y.

Sean Goforth (the "foreign affairs scholar" who wrote the article) even acknowledges how stupid these silly names are:

Ever since “axis of evil,” broad characterizations of geopolitical threats have been considered impolitic, if not ignorant. Certainly this had a lot to do with the intractable stance taken by the US government after President Bush's 2002 State of the Union, which led to the invasion of one country that didn't have WMD while speeding the development of WMD in at least one, if not both, of the other axis members.

But never mind all that, Goforth thinks we should go ahead and label them anyway, just maybe not go to war this time. Because after all "Venezuela, Iran, and Russia constitute a VIRUS of instability that threatens the United States and Western order." And isn't that what its really about? These people don't care what these countries do, so long as it doesn't threaten "American objectives worldwide" or "western order". I mean that whole sovereign right thing overrated anyway. Because after all, America's never been wrong before....oh wait....except for the "axis of evil".

Is NAFTA Making Mexico Fat?

Saw this graph from the New York Times yesterday (part of it reproduced above, from Kevin Drum), but all the commentary I saw was about the US in relation to France and Spain, nobody mentioned what immediately jumped out at me; namely that Mexico eats a shitload of food, and that most of it falls into the "packaged food" category. Turns out Mexico is actually one of the most obese countries in the world. I had no idea.

But whats behind this massive consumption of packaged food and the rise in obesity?

Well, this document, from Agriculture and Agri-Food Canada has one take:

Processed, ready-to-eat and frozen food products are gaining in popularity in Mexico as a result of changing lifestyles, women entering the workforce and increasing per-capita income levels. Furthermore, rising levels of wealth mean a growing audience for imported foods. As purchasing power gradually increases, convenience foods become seen as a time-saving alternative to traditional meals.

Well that sure is interesting, and hey the market IS growing at 12% a year, good for Canada's agri-food business! But come on, doesn't this seem more reasonable? From New America Media:

In less than a generation, Mexicans have gone from a nation of relatively healthy people to a nation confronting an unprecedented health crisis: morbid obesity. The culprit? The NAFTA diet.

...

The public health crisis precipitated by the change in the Mexican diet is causing alarm among politicians. Mexico is confronting an unprecedented strain on its national health system. Since NAFTA, “there’s been a greater consumption in fats, fried foods, carbonated soft drinks and fruit drinks that contain high levels of sugar,” Tomas Gloria Requena, a deputy in Mexico’s Congress, complained.

...

The change in the Mexican diet, however, is only one part of a complicated equation. In the course of implementing NAFTA, Mexico has sought greater coordination with both the United States and Canada. This has meant, among other things, aligning Mexican hours to the U.S. daylight and saving time changes, which, for a nation that lies closer to the equator, means more hours in school and at work. More importantly, Mexico, after a heated debate, officially abolished the siesta -– the traditional midday closing of businesses for three or four hours to allow people to go home and share meals with their families. As a consequence, working “9 to 5” means that home-prepared meals are for the majority of Mexicans a thing of the past, and the “super-sized” fast-food alternative is just around the corner.

“I see it every day,” Salazar continued, “children given money to buy a ‘Happy Meal’ and stressed out mothers who can only think of serving a Pizza Hut pizza for dinner. Over time, the junk food takes its toll on the body.”

If Mexico hoped that NAFTA would be a ticket to becoming more like the United States, it may have gotten its wish. One of the unintended consequences of the trade agreement has been to make Mexico a nation in which morbid obesity has become a national health crisis –- just as it has with its neighbor to the north.

Yeah, correlation does not imply causation and a lot of the packaged foods Mexico is consuming comes in the form of bakery items (check out the whole graph on the NYT not just the tidbit above), but I think its probably fair to say the NAFTA diet hasn't really been a diet! And really those two explanations above are not that far apart; "changing lifestyles", "women entering the workforce", "time-saving alternative". The problem is one description sees an opportunity, one sees a looming public health crisis. My vote is for public health crisis.

Bogotá Cambió

So who is this Antanas Mockus guy? I mean, we all know he's a presidential candidate in Colombia and is rapidly rising in the polls... but who is Mockus the man? Where does he come from and what makes him tick?

Well now you can find out. The man was hugely successful as two-time mayor of Bogotá, where he set off what is arguably the strangest, most post-modern, and all around awesome process of urban renewal ever. As just one example that doesn't even begin to scratch the surface, this guy fired 3200 officers of Bogotá's notoriously corrupt traffic police and... replaced them with traffic mimes! Yes, mimes whose job it was to enforce traffic laws. Could I make this shit up?

And you know what's the real kicker? His unorthodox approach to city politics, inspired by his background in philosophy, paid off. But don't believe me, watch the great documentary below. And when I say great, I mean balls to the wall awesome. Cuddle up with a blanket and some popcorn and enjoy.

Oh and did I mention that before running for major he was the president of the National University of Colombia and...umm... mooned an auditorium full of people? True story.

Here's part 1:



part 2, part 3, part4, part 5, part 6, part 7.

hmmm...

draw your own conclusions on this one (from the always irreverent The Clinic):

Weekend Update

Not a lot from maladjusted this weekend, but lets take a look around and see what people who were more productive have been writing:

• Curious about inflation in Venezuela? I was, and so this post from Otto at IKN was much appreciated. Everyone knows inflation is high in Venezuela, but Otto breaks it down, and unlike the mainstream media he even notes that the minimum wage has tracked inflation pretty well over the last few years. Check it out.
  
  
• Peter Krupta over at Lat/Am Daily posts about Mockus' presidential run in Colombia, picking up where I left off last week.
  
  
• From Plan Colombia and Beyond we hear about the magic laptop.....wait, the other magic laptop, not from the FARC but from the paramilitaries. Files from a memory card from AUC leader "Jorge 40" provide some corroboration to the accusations against Colombia VP Francisco Santos of paramilitary ties. Read the excerpt from the files, or check out the whole thing, but take it all with a grain of salt (like any info from a terrorist's laptop).
  
  
• Some big (and disappointing) steps are taken in the normalization of relations with Honduras. Pepe "reconciliation" Lobo was in Nicaragua on Friday getting the head of state treatment from Ortega. Lobo also got invited by Spain to attend the 6th European Union - Latin American and Caribbean Summit in May. This all follows Western Hemisphere point man Valenzuela's remarks that Honduras was ready to return to the OAS. All in all it looks like a successful whitewash at this point. Expect more remarks from Clinton like, "I cannot think of another example of a country in Latin America that, having suffered a rupture of its democratic institutional order, overcame such a crisis through negotiation and dialogue." Meanwhile activists and journalists continue to be killed at an alarming rate.
  
  
• Also on Honduras, The Financial Times gives Andres Thomas Conteris some love. The guy was in the embassy with Zelaya from day one and his coverage of Honduras has been some of the most informative. A unique insiders view, we get tidbits like, "When we jogged on the patio, sometimes we saw little red laser dots trained on our bodies." Yay democracy!
  
  
• Pablo Navarrete, editor of the Red Pepper Venezuela blog and director of the film "Inside the Revolution: A Journey into the Heart of Venezuela", has an op-ed in the Guardian on the media's representation of Venezuela. The article is worth a read, and the movie is worth a watch.
  
  
• An interesting IMF Working Paper looks at the efficiency of foreign banks in Central America. Key take away: "foreign banks are on average not more efficient than their local or regional competitors."
  
  
• In case you missed this last week, coverage continues on the US/Brazil military agreement, described by one senior official as "more “aspirational” than specific." The deal is set to be signed tomorrow in DC. In case you thought the US was trying to secure the Brazilian order for fighter jets with this move, think again; France's Rafale seems to have sealed the deal by offering full technological transfer. Defense Secretary Gates, after signing the agreement, sets off for a tour of the region to the US' BFFs Colombia and Peru where he will pay lip service to the war on drugs and combating terrorism, most likely at the same time criticizing Venezuela for leading some sort of "arms race".
  
  
• From Bolivia, that crazy socialist Evo continues to lead the economy into the ground.....and announces THE HIGHEST GROWTH IN THE REGION IN 2009, an impressive 3.36%. No surprise to those who have been paying attention though.
  
  
• Also from Bolivia, Jim Schultz at the Democracy Center looks back at the Bolivia Water Revolt ten years later.
  
  
• Speaking of water wars; there have been large protests, led by CONAIE, in Ecuador over proposals for a new water law. The protests succeeded in delaying the passage of the law and secured promises from legislators that their concerns will be taken into account.
  
  
• Finally, NACLA looks at a lawsuit in the New York State Supreme Court that pits Coca-Cola against two Guatemala union leaders. The prosecution is calling out a Coca-Cola subsidiary for encouraging violence against union leaders and generally just screwing the unions...I know, total shocker.
  
  UPDATE:
  
  
• Via Bolivia Rising; Bolivia's ambassador to the UN, Pablo Solon, denounced the decision by the US to cut climate aid to countries who didn't back the Copenhagen accord. Bolivia and Ecuador both lost a couple million in funding.