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UK Prime Minister David Cameron with Mexican President Enrique Peña Nieto in London last year. Also present UK Foreign Minister Philip Hammond and then-Mexican Foreign Minister José Antonio Meade (shaking hands with Cameron). Photo: Mexican Government
Monday, June 27, 2016
Perspectives

Brexit: The Impact on Latin America


Four experts share their insights on the Brexit impact on Latin America.

BY LATIN AMERICA ADVISOR
Inter-American Dialogue

In a surprise decision, voters in the United Kingdom decided on Thursday to leave the European Union, a move that shook financial markets and called into question future economic growth and political stability in Europe and beyond. What are the implications of the “Brexit” for Latin America and the Caribbean? How will the decision alter the status of free-trade agreements in place and those under negotiation? What are the political implications for the region of the United Kingdom’s turn toward “independence”?

Arturo Sarukhan, member of the Advisor board and former Mexican ambassador to the United States: With their vote in favor of Brexit, Britons have thrown a spanner in the works of the European Union, jeopardized the TTIP negotiations with the United States, and forced the two Latin American nations that have free trade agreements with the E.U.—Chile and Mexico—to start contemplating the challenge of initiating negotiations with a U.K. outside the Union. But more critically, Brexit has injected new energy into populist currents that are roiling politics on both sides of Atlantic. The vote comes at a time of worldwide uncertainty, with the global economy at a potential inflection point. The dark forces of history—nationalism, fragmentation and xenophobia—could simply skyrocket. While it would be too deterministic—and simplistic—to state that what has happened in Britain will have direct implications for the Americas, Brexit could be like manna from heaven for an isolationist, demagogue and nativist like the presumptive Republican presidential candidate. And it will certainly be relevant not only for the way in which the two campaigns in the U.S. react to the tectonic shift that has just taken place in Europe, but also for how citizens across the Americas interpret the motivations and reasons for how Britons voted. It’s not just that Brexit has channeled skepticism or outright rejection of economic interconnectedness and globalization. It again points to a fundamental conundrum of our age. Thanks to digital platforms, social media and the real-time connections that the Internet has unleashed, there is a growing cleavage between society and public policy; while the demands, aspirations and concerns of citizens ride in an express elevator, the responses of national governments to those demands use the stairs. Brexit again shows that in the 21st Century, we have more knowledge, but less wisdom; more data but less judgment; and wider connections but deeper balkanization.

Mark S. Langevin, Professor and Director of the Brazil Initiative at the Elliott School of International Affairs, The George Washington University: The Brexit is not catastrophic, but a consequence of the global economic downturn. Uneven capital and trade liberalization concentrates incomes and opportunities for wealthy and well-educated winners, but leaves too many vulnerable to the riptides of economic globalization. The United Kingdom is now changing the game plan and governments and firms in Latin America and the Caribbean will need to adjust. Latin American and Caribbean monetary policymakers now understand the dangers of opening up the national capital accounts in the face of the global financial crisis that hit the region in late 2007 and 2008. However, slumping commodity prices push the region’s governments and private sector leaders to seek market openings for a broader set of industrial and service exports without any expectations of concluding the Doha round of the World Trade Organization. The United States and the European Union are no longer interested in global trade liberalization; making carefully calculated managed bilateral and regional trade the only viable option for the region’s governments and business leaders. The Brexit bolsters this outlook. The region will sharpen the focus on Asia as the driver of global growth. The Pacific Alliance countries will not rest until the Trans-Pacific Partnership (TPP) is ratified. Brazil and Mexico may accelerate efforts to celebrate a free trade agreement. The Brexit further complicates the E.U.-Mercosur trade negotiations, but may budge Argentina and Brazil to allow each of the member-states greater latitude in pursuing export market opportunities and global value chain integration to counter the losses associated with getting fenced out by the TPP. The Brexit does not change this regional outlook, but may give it more urgency in the coming years.

Kevin Casas-Zamora, senior fellow and director of the Peter D. Bell Rule of Law Program at the Inter-American Dialogue: It is too early to know the full scale of the fallout from the U.K.’s shocking vote to leave the European Union, although the consequences will be far reaching. In the case of Latin America, the effects will be somewhat less relevant and mostly felt via the European Union and, more generally, the world economy, rather than through the bilateral links with the United Kingdom, a relatively marginal trade and investment partner for the region. Three economic consequences deserve to be mentioned. First, the vote introduces a considerable element of uncertainty into the global economy, which is bad news for a Latin America that is already facing strong economic headwinds. The specter of an economic contraction in the European Union must be taken seriously by countries for which Europe is a relevant trading partner. These countries include Brazil, Colombia, Argentina and Chile. If the slowdown generated by Brexit goes beyond Europe, the fallout will of course affect the whole of Latin America. At a minimum, it would likely depress further oil prices, whose collapse has already wreaked havoc with public finances in Venezuela, Colombia, Ecuador and Mexico. Second, the intense debate within the E.U. that will surely follow this result, as well as the protracted divorce negotiations with the U.K., mean that finalizing pending trade agreements—either with Mercosur or the United States—will be all but impossible for the E.U. in the foreseeable future. Third, as suggested by the markets’ immediate reaction to the vote, we will see a significant strengthening of the dollar, which could be problematic for Latin American countries with significant debts in U.S. currency. Finally, Brexit is also likely to have some subtle consequences for political debates in Latin America. It will help to dampen enthusiasm for integration processes and globalization, and provide ammunition to the latter’s numerous critics. More importantly, Britain’s vote is, arguably, the strongest statement, so far, of a global anti-establishment sentiment that is a staple of Latin American politics, even in the best of times. Anti-establishment voices in Latin America—a growing chorus—will take heart from this remarkable result.

Nicolás Mariscal, member of the Advisor board and chairman of Grupo Marhnos: The implications go beyond the commercial level and have more to do with the hyperlinked world economy and financial system. Colombia, Chile, Mexico and Peru have free trade agreements with the United Kingdom. They will have to renegotiate their trade conditions with the Brits. Although Colombia has the highest percentage, its exports to the U.K. represent just 2.5 percent. For Mexico, the U.K. represents 0.44 percent of its exports. After the Brexit, global markets were extremely volatile (especially currency markets) and more risky assets became weaker. The money flew to the gold and sovereign bonds. Some countries already made adjustments to their budgets, in order to give more certainty to investors of fulfilling their financial goals; this is the case for Mexico. Some British companies are in Latin America. For countries like Colombia and Peru, the U.K. is a very important source of foreign direct investment. With the pound reaching such low values, for those investors to remain in the region will depend on each company´s situation and strategy. Perhaps the main implication for Latin American countries would be the negative effect that the Brexit will have in the global economy. Particularly for Mexico, a negative effect in the U.S. economy could have a high potential impact.

Republished with permission from the Inter-American Dialogue's daily Latin America Advisor

 

 

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