US-LA: Finance and diplomacy

The past two months have been some of the most tumultuous and unstable in recent memory. The overnight collapse of some of the supposed pillars of free-market capitalism and the ensuing freeze on circulating credit spelled disaster for markets worldwide. Latin American nations have not escaped the wrath: Within the past month alone, the Brazilian exchange market BOVESPA external pagehas fallen 37 percentcall_made and the Mexican exchange market BOLSA external page32 percentcall_made at the time of closing on 24 October.

The oft-quoted phrase "when the US sneezes, the rest of the world catches a cold" could not ring truer for Latin America, where many countries depend upon the US - from trade to remittances - for much of their revenue. The slowdown in US purchasing power has highlighted the vulnerability of export and external pagemanufacturing-dependentcall_made Latin American economies. As external pageMarco Vicenzino points outcall_made in a recent article on the far-reaching political effects of the credit crisis, everyone from petro-dependent states such as Venezuela to stronger, more free-market economies such as Brazil's are at risk.

Latin American leaders were external pagequick to blamecall_made the crisis on the irresponsibility of the US. This highlights an occurring trend and may become more commonplace in years to come: Latin American nations voluntarily distancing themselves from US political and economic policy.

external pageAltamir Lopescall_made, the head of the economic research department for Brazil's Central Bank, claims the crisis will be the first step in an emerging trend of multilateral cooperation with the US and other nations. An emergency meeting on the economic crisis in external pageNovembercall_made between Presidents George Bush and Lula da Silva of Brazil shows this prediction is already true.

Mired in trillions of dollars worth of debt, an unpopular war and a fiercely contested political election, the US' messaging consistently falls on deaf ears. Any advice from the north seems out of touch and hypocritical, but also wrong and potentially harmful. The result may soon become indifference and the US' increasing inability to do anything about it. A test of the extent of power the US still wields in the region will be how external pageBolivia respondscall_made to President George W Bush's removal of preferred trading status, announced during the week of 13 October.

One nation that has gained a foothold in the region through trade and external pagecloser political tiescall_made is China. As US influence ebbed amidst low popularity and frustration with Washington, China has stepped in to snatch up Latin America's abundance of natural resources, especially oil, copper and iron ore. Between 2006 and 2007, trade between China and Latin America increased by external page46 percentcall_made to US$102.6 billion. This number may continue to rise as China increasingly looks to the US' "backyard" for raw materials to fuel its industrialization. China and Latin American nations are politically aligned as well; external pagePeru's rejectioncall_made of Tibetan sovereignty and external pageParaguay's recent reversalcall_made to formally recognize Taiwan are but two examples.

Changes are occuring intra-regionally as well. On 3 October, Brazil and external pageArgentina officially eliminatedcall_made the dollar as the currency used in bi-national trade. The move was politically well-timed: Although Brazil and Argentina planned this for over two years, the new policy demonstrates the ability and eagerness of the two nations to distance themselves from the US at a time of perceived weakness.

The increased political and economic ties with nations other than the US represent a change in the old guard of US domination. The Bush administration's neglectful attitude toward the region disaffected millions who still do not see the immediate benefits of free trade, evidenced by the failure of the Free Trade Agreement of the Americas (FTAA).

In spite of anger at the perceived hypocrisy of US economic policy, the region still heavily depends upon the US as a source of revenue. Strategic geographic location and purchasing power makes the US undoubtedly Latin America's largest trading partner.

A slowdown in the US economy precludes a slowdown in demand for exports from Latin America, and as a result the region may look to markets elsewhere. Yet it is the location, accessibility to markets, purchasing power and historical precedence that will still make the US Latin America's number one trading partner for the foreseeable future.

However, Washington's influence as a regional policymaker may change sooner than many think as a result of the credit crisis. While the region will still depend heavily on US imports and exports, Latin American leaders will likely pay less attention to policy suggestions and mandates coming from the north in the wake of 185 years of the Monroe Doctrine, eight years of neglect and two months of financial instability.

The credit crisis is a major chink in the armor of a system the US has championed for years in Latin America. One of the new US president's first tests in the region will be how he handles not only the pending slowdown of Latin American economies, but also the strained relations, anger and frustration felt throughout the region.