Regional Integration in the Americas: The Impact of the Global Economic Crisis

Latin America has been hit hard by the current global economic crisis; however, its impact has been largely felt in trade as opposed to finance. The crisis has forced a rethinking of the conventional wisdom regarding regional integration plans, Latin America's role in reforming the international financial architecture, and the ability of inter- and intra-regional trade to spur economic growth. To discuss these issues, on November 23, 2009, the Latin American Program joined with the Mercosur Economic Research Network (RED Mercosur) in convening the conference "Regional Integration in the Americas: The Impact of the Global Economic Crisis."

The fact that Latin American countries were for the most part able to weather the global storm without any major upheavals, shocks, or collapse speaks to the progress the region has made in pursuing sound macroeconomic policies, explained Senior Program Associate of the Latin American Program José Raúl Perales. The crisis did not result in financial doom for Latin America; rather, it mostly led to a steep decline in trade and a call to rethink the unconditional push for greater and deeper regional economic integration in the Continent and with the United States.

The economic crisis is only exacerbating the stagnation already present within Latin America's regional integration efforts, added Roberto Bouzas, Professor of International Relations at the Universidad de San Andrés, Buenos Aires. Deeper integration is constrained by a number of factors, including a leadership vacuum in the region, the politicization of integration institutions such as MERCOSUR, and the proliferation of bilateral free trade agreements at the expense of customs unions.

This competitive liberalization process represented by bilateral trade agreements in the region was initiated by Chile's deal with the United States. Many smaller states have followed suit and are now reaping the benefits, explained Associate Professor of International Relations at the University of Southern California, Carol Wise. For example, both Chile and Peru have bounced back quickly from the crisis thanks to their earlier negotiations with China and United States over old and new trade agenda items, respectively.

Paolo Giordano, Senior Economist at the Trade and Integration Sector of the Inter-American Development Bank, expressed confidence in the future of Latin American integration, given long-term trends and the positive outlook after the crisis. The region is increasingly seeing trade liberalization as a strategy with potential pay-offs, instead of as a defense against or reaction to the region's deficiencies or the threat of globalization.

Latin American trade was devastated by the crisis, explained Sidney Weintraub, the William E. Simon Chair in Political Economy at the Center for Strategic International Studies. This has done nothing to help the region's already stalled integration efforts. In fact, unless Mexico and Brazil—Latin America's two largest economies—band together behind trade talks, Weintraub sees increased integration highly unlikely.


One issue hampering Latin American integration is Brazil's focus on South America at the expense of Central and North America, argued Ambassador Rubens Barbosa, President of the Upper Council of Foreign Trade from the Federation of the Industries of the State of São Paulo (FIESP). Brazil benefits by focusing on South America, where its influence remains unchallenged by the United States. Barring U.S. agricultural concessions to Brazil that could rekindle hopes for a hemispheric trade agreement, Brazil will keep the sub-region inward-oriented.

Regional integration is not a short-term answer to the current global crisis; however, it is the long-term answer to Latin American economic growth, export diversification, and competitiveness, argued Luz María de la Mora, Executive Director of LMM Consulting in Mexico City. For regional integration to proceed, Brazil and Mexico must muster the willpower to lead. The crisis has created an opportunity to rethink regional integration; it is up to these two countries to step up and propose new region-wide integration initiatives.

Integration blocs should play a key role in reforming international financial architecture, argued José María Fanelli, Senior Researcher at the Center for the Study of State and Society (CEDES) in Argentina. Such blocs provide a framework for coordination and institution-building, in order to reduce macroeconomic volatility, implement Financial Stability Board standards, and manage international liquidity.

Pablo Sanguinetti, Professor of Economics at the Universidad Torcuato Di Tella in Buenos Aires, disagreed. He argued instead that regional integration agreements should not have a role in the development of a new international financial framework. Regional development banks, however, could and should play a role by serving as short-term credit lenders, offering ready-to-use, unconditional, credit lines for liquidity purposes.

The crisis has forced us to rethink the conventional wisdom on regional integration and the much-heralded decline of the state, according to Ramón Torrent, Professor of Political Economy and International Economic Law at the University of Barcelona. Likewise, it has refined our understanding of regional integration efforts: the failure of the European Union to face the crisis in a meaningful way demonstrates many of the potential pitfalls to poorly-designed and -implemented economic integration.

Barbara Kotschwar, Research Associate at the Peterson Institute for International Economics, argued that Latin America has fared relatively well thanks to favorable external conditions and strong macroeconomic fundamentals. Within the region, the countries most integrated in international trade and most linked to the United States have done the worst during the crisis. The region should continue to recover so long as the United States rebounds, Asia continues to grow, and protectionism does not rear its ugly head.

Director of the Washington Office of the Economic Commission for Latin America and the Caribbean Inés Bustillo detailed the impact of the crisis on intra-regional trade. Policy responses have been less protectionist than those in the developed world: for the most part, Latin America has opted for trade-liberalizing measures over trade-restricting ones. She argued that Latin American countries must work together through regional bodies and build upon existing integration efforts in order to mitigate the negative effects of the crisis.