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April 13, 2016
Latin America has seemingly split into two different blocs of countries with those that face the Atlantic and those facing the Pacific. Their difference however is not solely geographical but it has formed into an economic split and variation of trade policies. Those that face the Atlantic Ocean such as, Argentina, Brazil and Venezuela can be characterised as mistrusting globalization and having largely state controlled economies. The other bloc, facing the Pacific Ocean includes countries such as, Mexico, Peru, Chile and Colombia all of which support and promote free trade and free markets. The Atlantic countries have grown quickly in the last decade mainly due to rising global commodity prices. However, the Pacific countries look to be making the case that they are set up to prosper in the near future. The whole region therefore faces a decision; to face the Atlantic or the Pacific?
With countries such as Chile, Colombia, Mexico and Peru and receiving nothing but praise with regards to development, economic stability and favourable investment schemes, there is a strong case in favour of facing towards the Pacific. Morgan Stanley estimates that in 2014, the Pacific Alliance trade bloc, consisting of Mexico, Colombia, Peru and Chile is likely to grow an average of 4.25% mainly due to high levels of foreign investment and low inflation rates. On the other side of the continent, the Atlantic group, made up of Brazil, Venezuela and Argentina and linked to Mercosur customs union is only estimated to grow 2.5%. As China’s economic growth has plateaued, commodity prices have followed suit and in turn the Atlantic economies have been hit the hardest.
However, it is not just one factor that has led to a more optimistic outlook for the Pacific bloc as the economies are more stable, enjoying low inflation rates and large foreign reserves. By contrast, Venezuela and Argentina are becoming prime examples of the problems with high inflation rates and weak government finances. Among the three worst performing currencies in Latin America in 2013, were Brazil, Venezuela and Argentina. The Argentine Peso fell 32% against the official dollar rate and an outstanding 47% on the black market. Heavy handed regulation within these countries, such as Argentina, has seen regular blackouts during the summer months and faltering investment to update aging electricity grids and other services. In 2013, a Brazilian resident summed up the harsh reality of the Atlantic bloc stating that Brazil is becoming Argentina, Argentina is becoming Venezuela and Venezuela is becoming Zimbabwe.
A key moment in the formation of the two blocs occurred in 2005 when Brazil, Argentina and Venezuela joined forces to bring an end to the proposed Free Trade Area of the Americas. In response, the Pacific Alliance created its own free-trade area, eliminating tariffs on 90% of goods as well as drawing up a timetable to eliminate the rest. This move by the Pacific bloc as well as not viewing the US with suspicion and hostility as done by the Atlantic bloc is perhaps why this zone is set to flourish in 2014 and the future.
Whilst the Atlantic bloc has enjoyed a decade of growth and prosperity, it seems as though the Pacific bloc nations have set themselves up for steady and stable growth and development. Only time will tell and the results captured from these two blocs in Latin America will tell the whole story. However, based on what we know and what we see today, many of the Atlantic facing nations, might begin to look over their shoulders at their Pacific facing neighbours basking in what could be a future of prosperity and strength.