The good news from Latin America

On February 23, representatives of 32 nations in the Western hemisphere gathered in Playa del Carmen on Mexico’s Yucatan Peninsula to discuss formation of a new political forum. The new organization doesn’t yet have a name, but for simplicity, let’s call it the Council of Latin American and Caribbean states (CLAC?). Some covering the event seized on the fact that the new forum will exclude the United States and Canada. Is this bad news for North Americans hoping for regional stability and a market-friendly Latin America? Not really.

We’ve learned some important things about Latin America in recent weeks. We learned that one of the most market-friendly countries in the region, Chile, is a resilient place. Despite an earthquake 500 times stronger than the one that devastated Haiti on January 12, there will be a peaceful transfer of executive power on March 11 from a president of one party to the president-elect of another. And despite the kind of breakdown in public order you’ll find in any country following a catastrophe of this scale, Chile has the economic and political resources it will need to rebuild.

Profits from copper sales, which are unlikely to be affected much by the quake, provide Chile with about $16 billion in savings. Its government can also tap financial markets to finance an increase in state spending on disaster relief. The country is also blessed with some of the most efficiently run governing institutions in Latin America.

This is the definition of stability: the capacity to withstand a serious shock to the system with its institutional integrity intact. New president Sebastian Pinera faces a tremendous challenge in months to come, but he’ll have the advantages that political legitimacy can provide.  

We’ve also seen a show of institutional strength in Colombia, where a constitutional court has finally rejected a bid by President Alvaro Uribe to alter the constitution and do away with presidential term limits. The vote was seven to two. Uribe can claim much credit for seven years of growth fueled by a surge in foreign direct investment and a dramatically improved security environment within the country. But his exit will help restore faith in Colombia’s democracy and rule of law, and it opens the way for a talented field of candidates who agree on the need to encourage foreign investment.

There are hopeful signs for foreign investment even in Venezuela, where President Hugo Chavez recently wooed multinational oil companies with a bid round, the first real test of foreign investor interest in Venezuela’s oil industry since Chavez became president in 1999. His government’s willingness to lower the tax burden on foreign oil companies (and the obvious attraction of the Orinoco Belt’s huge reserves) drew offers from both multinationals and state-owned oil companies.

In fact, separating words from deeds helps explain why Americans and Canadians shouldn’t worry too much about the work of that new regional forum. It can’t replace the Washington-based Organization of American States, whatever Chavez says to the contrary, because while Brazil and Mexico can use the new club to bring their regional political clout into line with the market power of their emerging economies, the region will depend for growth on access to North American consumers for years to come.

Latin American governments are growing stronger, and that’s good news for North America.

Ian Bremmer is president of Eurasia Group and author of The End of the Free Market: Who Wins the War Between States and Corporations? (Portfolio, May 2010)