The post Trade Trends Estimate: Latin America and the Caribbean appeared first on WITA.

The atmosphere of uncertainty that characterized the 2020 US election was consistent with the rampant uncertainty that has plagued 2020 as a whole. The global COVID-19 pandemic, which has taken the world by storm, has disrupted lives, upended economies, and destabilized supply chains. 

This disruption was profoundly felt in the Western Hemisphere, where suppliers in the Americas were forced to adapt sourcing and inventory strategies as suppliers in Asia and other regions shut down operations, where companies faced shortages and interruptions, and where costs soared as necessary raw materials became harder to source. Even as grocery-store shelves quickly emptied, food and basic necessities became scarce for many, and personal protective equipment (PPE) went on back order, the world stepped up to diversify sourcing and manufacturing locations, setting the stage for the modernization and increased resilience of supply chains in the coming years. 

Supply remains crucial as governments, businesses, and individuals brace for a second wave of shutdowns and prepare to bounce back post-pandemic. A key priority for the next US administration will be working alongside partners and allies in the Western Hemisphere to assure supply-chain resilience is achieved and prioritized. 

President-Elect Joe Biden has pledged to build broad-based supply-chain resilience and to work collaboratively with the private sector to improve productivity and avoid unnecessary costs and bureaucracy.¹ Snap polls of businesses show they are counting on the next US administration to deliver on this promise.² As the inauguration of the forty-sixth president of the United States approaches, the question becomes: how can cooperation across the Americas, under a Biden administration, impact the future of supply chains in the Americas?

The post The Biden-Harris Administration and the Future of Supply Chains in the Americas appeared first on WITA.

For much of the region with limited manufacturing capacity, trade will be the most realistic pathway to meeting domestic vaccine needs during the current crisis. Even for major vaccine producers in Latin America, trade is of paramount importance. Vaccines are a highly complex compound involving numerous ingredients and stages of production. Few countries in the world possess all the necessary specializations and basic materials to produce a competitive and fully “local” vaccine. A made-in-Latin-America vaccine could entail active pharmaceutical ingredients (APIs) from China or formulation development in India, as well as adjuvants from Chile processed in Sweden. The import of intermediate goods is critical to the seamless production and assembly of final goods (vaccines) used for domestic consumption or export.

Given the globalized nature of vaccine manufacturing, governments in Latin America and beyond must ensure unimpeded trade flows across borders. Protectionist temptations can be hard to resist amidst global shortages, especially for countries with greater vaccine self-sufficiency. But these measures rarely pan out as desired and could result in dire regional and global consequences, including an unfortunate scenario of “vaccine nationalism.”

The breakdown of global trade in medical supplies earlier this year provided a fresh reminder of the still-present risks of protectionism. In March and April, for instance, eighty countries imposed export restrictions on medical supplies and equipment. This included at least seven countries in Latin America and the Caribbean region, as well as the world’s top three suppliers [China, the United States, and the European Union (EU)], which collectively account for 68.2 percent of regional imports of these critical goods. To protect lives and livelihoods, vicious cycles of commercial isolationism and retaliation must be avoided at all costs.

Specifically, Latin American and Caribbean policymakers can take actions to tackle shared challenges in trade on at least three levels. First, several viable quick wins exist at the national level. Governments should bring down two-way trade barriers on essential medical products and inputs, including import tariffs and export restrictions. Trade facilitation can reduce additional nontariff barriers through streamlined customs procedures and border crossings, electronic filing, expedited certifications and licensing, etc. Brazil, for instance, suspended anti-dumping and simplified administrative processes for import and export licensing of PPE and medical devices. Similar measures should be upheld to safeguard the trade of vaccines, as well as therapeutics, and other lifesaving products and services.

Second, international coordination between governments can further galvanize and amplify country-level actions. The Joint Ministerial Statement to ensure supply chain connectivity amidst the COVID-19 situation, initiated by Singapore and New Zealand in March, is an example to follow. As of July, ten other countries, including China, have joined the initiative, pledging their commitment to keep trade lines open for essential goods. Two Latin American countries, Chile and Uruguay, have also signed on.

Similarly, multilateral fora such as the Asia-Pacific Economic Cooperation (APEC) and regional integration processes such as Mercosur and the Pacific Alliance are other potential avenues to crowd in best trade practices. APEC members, including three Latin American countries, have issued at least three official declarations on trade facilitation. The Pacific Alliance is playing a critical role in trade policy coordination in Latin America and internationally through its COVID-19 Action Plan and ASEAN-Pacific Alliance Work Plan.

Third, collaboration between the public and private sectors is imperative. Delayed arrivals and departures of essential goods can be costly, especially for time-sensitive products like vaccines. Most vaccines are transported in refrigerated (or frozen) conditions and have limited room temperature shelf life, e.g., between two to twelve hours for Pfizer and Moderna’s COVID-19 vaccines. Even before COVID-19 disruptions, in 2019, the average time to clear exports through customs in Latin America and the Caribbean region was eight days; the average time associated with border compliance for imports was 2.3 days. Accelerating clearance can be achieved through efficient prioritization, nonintrusive inspection, digitization, etc. In addition, airports, seaports, and border authorities should work closely with logistics companies, vaccine producers, and various types of Authorized Economic Operators (importers, brokers, warehouses, and others). New requirements, processes, schedules, or contingent plans that may arise during the pandemic must be communicated clearly and promptly.

Another key area of public-private collaboration in trade is “hard” infrastructure. Enhanced interconnectivity can revitalize regional exports and intra-regional trade, benefitting pharmaceutical and many other supply chains in Latin America, making them more competitive. A 1 percent reduction in transport costs—achievable through infrastructure improvements—could boost overall manufacturing exports between 2 percent and 7.8 percent in Brazil, Chile, Colombia, Mexico, and Peru. In the context of the COVID-19 pandemic, reduced shipping costs and time benefit not only regional vaccine acquisition and production, but in-country distribution of the vaccines and treatments. 

To read the full brief, click here.

Pepe Zhang is an associate director at the Atlantic Council’s Adrienne Arsht Latin America Center.

© 2020 The Atlantic Council of the United States.

The post Moving Beyond COVID-19: Vaccines and Other Policy Considerations in Latin America appeared first on WITA.

To see the article click here

The post Trade and Real Wages of the Rich and Poor: Evidence from Brazil and Mexico appeared first on WITA.

Economic Crisis in Argentina

Argentina has a long history of economic crises. It has defaulted on its external debt (debt held by foreigners) nine times since independence in 1816. Argentina has also entered into 21 IMF programs since joining the international organization in 1956. The current economic crisis facing Argentina stems from longstanding challenges, as well as more recent developments.

Economic Reforms but Growing Vulnerabilities

When President Macri was elected in 2015, he ushered in a series of economic reforms aimed to address the unsuccessful economic policies of the previous Kirchner governments, which had governed Argentina since 2003. He cut export taxes, lifted currency controls, and resolved a 15-year long dispute with holders of defaulted Argentine bonds, allowing Argentina to resume access to international capital markets. The central bank also raised interest rates to 25% to curb inflation. The economy contracted by 1.8% in 2016, but resumed growth of 2.9% in 2017. To maintain political support for the reforms and support the country’s most vulnerable (one in three Argentines was living below the official poverty line in 2015), the government held off on substantial fiscal reforms to address the budget deficit, 4.3% of GDP in 2014.

However, the Macri government saw borrowing costs rise, as it switched to traditional borrowing from international capital markets relative to the Kirchners’ unorthodox financing tools, including money creation and coercing domestic banks into buying government bonds. The Macri government issued $56 billion in external debt between January 2016 and June 2018. Interest payments facing the government caused the budget deficit to increase to 6.4% of GDP in 2017. Meanwhile, capital inflows into the country to finance the deficit contributed to an overvaluation of the peso, by 10-25%. This overvaluation also exacerbated Argentina’s current account deficit (a broad measure of the trade balance), which increased from 2.7% of GDP in 2016 to 4.8% of GDP in 2017.

Crisis and Initial Policy Response

Argentina’s increasing reliance on external financing to fund its budget and current account deficits left it vulnerable to changes in the cost or availability of financing. Starting in late 2017, a number of factors began to create problems: the U.S. Federal Reserve (Fed) began raising interest rates, reducing investor interest in Argentine bonds; the Argentine central bank reset its inflation targets, raising questions about its independence and commitment to lower inflation; and the worst drought in Argentina in 50 years hurt commodity yields, significantly eroding agricultural export revenue.

Investors began selling Argentine assets, putting downward pressure on the peso (Figure 1). With most of its debt denominated in dollars, a depreciated peso increased the value of the debt in terms of pesos. To improve investor confidence, the central bank and government announced in April and May 2018 higher interest rates (to 40%) and fiscal reforms to cut the budget deficit. Market volatility continued, however, and in June 2018, the Macri government reached an agreement with the IMF for a three-year, $50 billion program. The government received $15 billion from the IMF upfront, with the intention to treat the remainder of the program as precautionary (having the resources available but to not actually to draw on them).

At the program’s outset, skeptics raised questions about the fiscal cuts and growth projections underpinning the program. Through the program, the government committed to politically unpopular austerity measures to bring the primary deficit (the government budget, excluding interest payments) into balance by 2020, from 3.8% of GDP in 2017. The IMF was aware of the potential risks when the program was approved in June. IMF staff noted in program documents they could not certify under the baseline forecast scenario with a high probability that Argentina’s debt would be sustainable. Argentina’s external debt is currently projected to reach $285 billion in 2019, an increase of more than $100 billion since 2015 (Figure 2).

Despite an infusion of funds from the IMF and commitments on fiscal reforms, the peso continued to depreciate over subsequent months, and the government announced aggressive policies to stabilize the peso. The central bank raised interest rates to 60% in late August 2018, the highest in the world, and the government committed to hastening the pace of fiscal reforms. President Macri requested the IMF accelerate disbursements of its financing. In September 2018, the IMF increased the program to $57 billion and agreed to front-load disbursements of financing, roughly doubling the amount available in 2018 and 2019.

Developments in 2019

The Macri government pursued fiscal reforms, reducing the budget deficit from 5.3% in 2018 to an estimated 2.5% in 2019, and the IMF disbursed funds to Argentina in March and July 2018. The current account deficit also narrowed, from 5.2% in 2018 to an estimated 2.0% in 2019. However, Argentina’s economy contracted by 1.2% in 2019, whereas the IMF program initially envisioned a return to growth in 2019. Austerity measures and high interest rates likely contributed to the economic contraction. The peso’s devaluation made it hard to tame inflation, estimated at 30% in 2019, and increased the real value of Argentina’s debt (mostly denominated in dollars), forecast at 76% of GDP in 2019.

The austerity measures and lingering recession in Argentina eroded Macri’s political popularity. In the August 2019 primary election (which combined candidates from all parties), Macri lost decisively to the Fernández-Fernández ticket. Fernández has pledged to “rework” Argentina’s IMF program if elected; many investors fear that a FernándezFernández government would resume the unorthodox economic policies from the Kirchner years. Following the primary, capital flight from Argentina accelerated, the peso reached a record low, and Argentina’s stock markets dropped.

President Macri subsequently shifted his economic policy approach. The Economy Minister Nicolas Dujovne, who negotiated the IMF deal, resigned on August 17, 2019, and the government rolled out plans for tax breaks, minimum wage increases, and freezing fuel prices. In late August 2019, the government announced it would postpone $7 billion in payments on short-term local bonds while pushing for a maturity extension of $50 billion in longer-term debt mostly held by foreign investors. The government is also seeking to delay repayment of $44 billion of IMF loans. On September 1, 2019, the government, unable to stabilize the peso with high interest rates and sales of foreign exchange reserves, authorized currency controls. Many of these policies are at odds with economic policies pursued by Macri upon his election in 2015.

Economic Implications for the U.S.

U.S. economic exposure to Argentina through direct trade, investment, and financial channels is relatively limited. Some U.S. investors, however, could be affected if the Argentine government seeks to restructure its debt. The role of the IMF also has implications for the United States, the IMF’s largest shareholder. Argentina has historically been a frequent IMF borrower, and previous programs have encountered difficulties. Argentina’s default in 2001, while on a sizeable IMF program, led the IMF to substantially revise its lending policies. In 2018, the U.S. government strongly supported the IMF program for Argentina, given President Macri’s demonstrated commitment to improving U.S.-Argentine relations and reforming its economy. U.S. government views, however, could change if Fernández wins the election and takes an aggressive position against the IMF.

Oversight Questions for Congress

• The Macri government made tough policy decisions, including austerity measures and high interest rates. What more could or should the Argentine government or IMF do to stabilize the economy?
• Argentina has been on IMF programs for more than half the years it has belonged to the institution. In what ways is the current IMF program similar to and different from previous IMF programs for Argentina? Should the United States support an extension of the repayment period for IMF loans to Argentina?
• Should the IMF have required debt restructuring with private creditors before extending the program to Argentina? What risks does Argentina’s program pose to U.S. financial commitments at the IMF?
• Are U.S. financial institutions sufficiently capitalized and diversified to withstand a potential debt restructuring by Argentina? Which U.S. investors would be affected by an Argentine debt restructuring?

For more on Argentina, see CRS In Focus IF10932, Argentina: An Overview, by Mark P. Sullivan.

To read original report, click here

The post Argentina’s Economic Crisis appeared first on WITA.

We asked these questions ourselves at the Inter-American Development Bank, as part of a study on how trade liberalization has impacted Latin America and the Caribbean (LAC) in recent decades.

To answer these questions, the IDB added a module on foreign trade to the 2018 Latinobarómetro opinion poll, which found that on average, 73% of Latin Americans expressed support for their country increasing trade with other countries.

Levels of support varies from country to country, ranging from 59% in Argentina and Peru to over 85% in Venezuela, Honduras, Uruguay, and Nicaragua. Despite this range, most respondents in each country favor increased trade.

However, the results also reveal that support for trade is fragile, as less than half of Latin Americans continued to express support when informed it may have negative consequences for employment. These reactions remind us of Princeton professor Alan Blinder’s comment that support for trade is “a mile wide and an inch deep.” This also seems to be true of Latin America.

Trade is good for employment

The poll also reveals a series of patterns that may prove particularly interesting to trade policymakers in LAC:

• The majority (58%) believe that trade boosts employment, while only 11% believe that trade leads to less employment. One exception to this finding is Chile, but in countries like Costa Rica, Honduras, Nicaragua, and Uruguay, over 70% of respondents share this view.
• Some 37% of respondents believe that increased trade leads to higher wages.
• Nearly four out of every 10 people think that trade is associated with a greater variety of products.
• Some 78% of Latin American men said they were in favor of trade, as compared to 71% of women.
• People with greater access to the media tend to be more in favor of trade (75%) than those with less access.

The above figures suggest that when it comes to trade, people care first and foremost about employment, a finding that policymakers seeking to pursue trade reforms or promote trade liberalization can make use of in their political and media strategies.

Both LAC and the world are protrade

By way of comparison, the poll’s findings on levels of support for trade among Latin Americans were on par with global attitudes to trade. According to the 2017 Pew Global Attitudes Survey, on average, 86% of respondents in 38 countries think trade and business ties with other nations are good for their country. According to Pew, levels of support for trade in Latin America are lower but still considerable at 80%.

A review of the Pew data on support for trade over time reveals that between 2002 and 2017, despite a slight downturn in support in Brazil, there is no evidence of a significant anti-globalization reaction in how either Latin American countries or the rest of the world feel about trade.

Major findings on support for trade

After analyzing the results of Latinobarómetro and comparing them with the Pew survey, we share three major findings on trade support that we think are particularly relevant for LAC countries:

1. While trade advocates can take heart in the population’s widespread support for trade, that support is tenuous at best. Policymakers must remain vigilant and seek out creative ways to hold onto this support.
2. When it comes to trade, people care first and foremost about employment. Policymakers seeking to safeguard trade reform or further liberalize their economies may need to counterbalance these initiatives with positive information about employment.
3. While mile-wide support for trade is reassuring, its inch-deep nature makes reform more susceptible to protectionist reversals in response to some politicians’ tactics concerning how trade affects employment.

To find out more, download the chapter “On Board with Trade, for Now: People’s Attitudes and Support”, which we are releasing as a special sneak preview for readers of this blog. This is one of the chapters of the IDB’s flagship Development in the Americas report, which focuses on trade this year and will be launched in November.

To read original article, click here

To read book chapter, click here

The post Latin Americans: On Board with Trade appeared first on WITA.

To visit the website click here

The post Trade Attitudes in Latin America: Evidence from a Multi-Country Survey Experiment appeared first on WITA.

To see the website click here

The post Trade Trends Estimates Latin America and the Caribbean 2019 Edition appeared first on WITA.