In June 2014, West Texas Intermediate, a benchmark crude oil grade, sold at $106 dollars per barrel. In early December, the price closed at $65 dollars per barrel, and is currently trading at just over $50 dollars per barrel. This precipitous decline has had an adverse effect on oil producers in Latin America—in particular, countries such as Mexico and Colombia that heavily rely on oil receipts to fund their national budgets.
On the other hand, consumers in Central America and the Caribbean are benefiting from low oil prices. Investors are looking at the region with a long-term view, and while some companies are cutting back on spending plans, the resources available in the region will continue to be attractive.
While formulating spending and investment plans for the year, energy companies will budget for a certain oil price in order to break even. For example, Venezuela’s break-even price in January 2015 was over $115 per barrel, making it extremely challenging to turn a profit. The drop in oil prices also impacts gas investment, because national and international oil companies often prospect the two at the same time—and thus must make appropriate spending decisions based on their relative prices. As such, the two markets are closely intertwined.
As investment levels are cut back, the oil price environment should be leveraged to encourage integration efforts in the region that would improve conditions for investment, even in a price-constrained environment. For example, the Pacific Alliance, which includes Chile, Colombia, Mexico, and Peru, should seek to create larger internal markets and stronger investment conditions to draw investment. Shale gas development is also priority for the Alliance, and the creation of a development bank to finance infrastructure projects is one recommendation for further development.
This week's likely top stories: Colombia to resume peace talks with FARC once hostages are released; Mercosur and Pacific Alliance convene to discuss regional cooperation; Uruguayans return to polls on Sunday to elect president; Panama courts Walmart for its regional distribution center; Goldcorp to inaugurate Cerro Negro mine in Argentina.
Hostages Released and Peace Talks to be Resumed: Peace talks between the Colombian government and the Fuerzas Armadas Revolucionarias de Colombia (Revolutionary Armed Forces of Colombia- FARC) will resume after the two parties reached an agreement to free hostages kidnapped by the FARC over a week ago. The FARC will release a total of five hostages, including General Ruben Dario Alzate Mora, the highest-ranking military captive ever taken by the FARC. The Colombian delegation will return to Havana and resume peace talks as soon as the captives are liberated and the humanitarian operations by the Red Cross to return the captives home are underway. Colombian President Juan Manuel Santos ordered the suspension of the peace talks on November 17, just after the kidnappings took place.
MERCOSUR and Pacific Alliance Meet in Santiago: Chilean President Michelle Bachelet inaugurated a meeting today in Santiago between Latin America’s prominent regional integration blocs, the Alianza del Pacífico (Pacific Alliance)—comprising Chile, Mexico, Colombia, and Peru—and the Mercado Común del Sur (Southern Common Market—Mercosur)—which represents Brazil, Argentina, Uruguay, Paraguay, and Venezuela. The meeting, a follow up to Chilean Foreign Relations Minister Heraldo Muñoz’s proposal last February to design a formal trade alliance between the entities, brings together representatives from both sides, including trade officials, academics, union members, and business leaders, in order to dialogue about opportunities for cooperation on climate change, infrastructural development, public health, tourism, and the export of manufactured goods. In her opening statement, Bachelet said, “We are hoping that this historic meeting sets us on our first steps down the shared path of developing our Latin America and each one of our countries.”
Uruguayans Vote for President on Sunday: Uruguayan voters will return to the polls this Sunday, November 30, to elect the country’s next president in a runoff vote. Former president and Frente Amplio (Broad Front—FA) candidate Tabaré Vázquez is almost assured a victory after a November 12 Cifra poll showed that 52 percent of eligible voters plan to elect Vázquez, compared with the 35 percent of voters who plan to vote for challenger Luis Lacalle Pou of the Partido Nacional (National Party—PN). Other polls have made similar predictions, and Lacalle Pou recently said that he fully expects to be defeated by Vázquez in the second round. Vázquez just missed an outright victory after he won 47.8 percent of votes during Uruguay’s first round election on October 26, falling short of the 50 percent plus one required to avoid a runoff. Vázquez served as Uruguay’s president from 2005 to 2010.
Panama Courts Walmart to Host Distribution Center: Panamanian business leaders have asked U.S. multinational Walmart to build a Latin American distribution center in Panama’s free trade zone, the Zona Libre de Colón (ZLC). ZLC Manager Surse Pierpoint said that Panamanian President Juan Carlos Varela has sent a letter to Walmart executives asking them to consider the proposal, which Pierpoint said will “elevate the status and image of the ZLC” and attract additional companies to Panama. Pierpoint and other business leaders, including the head of the Consejo Empresarial Logístico (Business Logistics Council) and the Cámara Marítima (Maritime Chamber) are seeking a meeting with Walmart executives, expected to take place in December or January, to pitch the proposal.
Goldcorp to Open New Mines in Argentina: Today, the Argentinian Secretary of Mining, Jorge Mayoral, announced in a memo following an on-site meeting with Goldcorp’s Vice President and COO of Central and South America, Eduardo Villacorta, that the company’s Cerro Negro mine will be inaugurated in February 2015. In 2010, Canadian gold giant Goldcorp acquired the Cerro Negro mine, located in the Santa Cruz province of Argentina, and invested $1.67 million in its reconstruction. Cerro Negro is expected to forge between 130,000 and 180,000 ounces of gold before the end of 2014, and once fully operational, the mine will maintain a production capacity of 4,000 tons per day of concerted gold and silver throughout its 23 year lifespan. Cerro Negro marks the Vancouver-based miner’s second Argentinian venture, after its 37.5 percent share of the Alumbrera copper mine in Catamarca.
In early March, The Washington Post ran an article on pending ambassadorial nominations worldwide, highlighting the fact that political maneuvering in the U.S. Senate was stalling numerous nominations and that, by implication, U.S. interests abroad were suffering.
Nowhere is this more evident than in the Western Hemisphere, which, at the time the article was written, hosted U.S. embassies with almost half of the ambassador slots vacant. Some of these vacancies—such as in Bolivia and Venezuela—are long-standing, owing to political difficulties with host nations. Others, including in Colombia, have subsequently been filled.
Still, a disheartening number of posts remain without fully accredited ambassadors. Of these, one in particular stands out: Peru, which has been without an ambassador since Rose Likins left in September 2013.
A qualified candidate to replace her, career official Brian Nichols, was nominated on June 24, 2013, and was unanimously approved by the Foreign Relations Committee in October and again in January 2014. He has yet to be confirmed, patiently waiting longer than any other nominee for any other ambassador post worldwide.
This is particularly strange—to say nothing of the personal toll that it takes on nominees and their families—because a prosperous, democratic Peru is a cornerstone of U.S. policy in the Americas. The trade and investment relationship is strong and growing. Peru is an important economic partner with a bilateral free trade agreement and a party to the ongoing TPP negotiations. Peru is also a founding member of the Pacific Alliance, consisting of four Latin American nations pursuing a new vision of economic integration that fits comfortably within a framework of U.S. interests.
The presidents of Chile, Colombia, Mexico, and Peru—which together represent 36 percent of Latin America’s GDP—begin arriving in Cali, Colombia, today for the seventh Pacific Alliance Summit. Spanish President Mariano Rajoy, Canadian Prime Minister Stephen Harper, Guatemalan President Otto Pérez Molina, Costa Rican President Laura Chinchilla, Panamanian President Ricardo Martinelli, and representatives from Australia, Japan, New Zealand, and Uruguay will also be attending the presidential summit on Thursday.
Members of the Pacific Alliance bloc, created last June, are focusing on decreasing trade barriers and fostering the free circulation of goods, services, capital, and people. One way it seeks to accomplish this is by making the elimination of travel visas between member-states a requirement—a sticking point that could deter Canada from becoming a member. The rapidly-growing alliance differs from other regional groups such as Alianza Bolivariana para los Pueblos de Nuestra América (ALBA), Mercado Común del Sur (Mercosur) and Unión de Naciones Suramericanas (UNASAUR) in that it seeks to capitalize on global flows rather than protect against globalization.
This week’s meeting marks the seventh presidential summit in two years to promote greater economic opportunities and deepen cooperation between Latin America and Asia-Pacific countries. While the Trans-Pacific Partnership (TPP) already includes Asian members, Mexican Vice-Minister of Foreign Affairs Sergio Alcocer believes that the Pacific Alliance’s focus on bilateral trade agreements across the Pacific could open up Asian markets before the TPP.
The most controversial outcome of last month’s second CELAC (Community of Latin American and Caribbean States) summit in Santiago, following close on the heels of the first EU-CELAC meeting, was the decision in Santiago to appoint Cuban President Raúl Castro to the chairmanship of the 33-member regional body.
Castro, who will be splitting the two-year term with his Costa Rican counterpart, Laura Chinchilla, could not resist several pointed remarks aimed at the United States. He decried the presence of multinational companies in the region and the U.S.’ continued possession of Puerto Rico. The 81-year-old leader’s message was clear, however:
“We are building the ideal of a diverse Latin American and Caribbean region united in a common space of political independence and sovereignty over our enormous natural resources to advance toward sustainable development [and] regional integration,” Castro said.
Colombian President Juan Manuel Santos described Cuba’s leadership of CELAC as a “very significant political development with special symbolism.” Though absent from the summit, Venezuelan President Hugo Chávez wrote in a letter that the act told “the U.S., with a single voice, that all the attempts to isolate Cuba have failed and will fail.”
From Americas Society/Council of the Americas. AS/COA Online's news brief examines the major—as well as some of the overlooked—events and stories occurring across the Americas. Check back every Wednesday for the weekly roundup.
VP Biden Meets with Mexican and CentAm Leaders
U.S. Vice President Joe Biden traveled to Mexico and Honduras this week. In Mexico, Biden met with President Felipe Calderón, where the two discussed trade ties, illegal arms trafficking, and the decriminalization of drugs. Biden qualified that third topic as “worth discussing,” but added that “there is no possibility the Obama-Biden administration will change its policy.” Biden also met with the three main Mexican presidential candidates: Andrés Manuel López Obrador, Enrique Peña Nieto, and Josefina Vázquez Mota. Biden pledged that the Obama administration plans to work with whoever wins the July elections, a promise Bloggings by Boz’s James Bosworth calls “an important gesture in this political climate.” Shannon O’Neil writes for LatIntelligence that the meeting showed how far Mexico’s democracy has come: “A few decades ago a U.S. official meeting with opposition candidates would have caused great consternation and tension between the governments; today it is accepted and even expected.” On Tuesday, Biden traveled to Tegucigalpa to meet with the presidents of Honduras, Costa Rica, El Salvador, Guatemala, Nicaragua, and Panama. Biden addressed the challenges in confronting transnational crime and promised an additional $107 million for the Central American Regional Security Initiative.
Mexico to the United States: Let Us in to the TPP
In an op-ed for Politico, Mexico’s Secretary of Economy Bruno Ferrari García de Alba urges the United States to let Mexico enter negotiations for the Trans-Pacific Partnership (TPP), a free-trade agreement involving nine countries bordering the Pacific Ocean. Writes Ferrari: “Mexico’s inclusion in the TPP would be of real value to Washington—not only because it could provide an immediate boost to U.S. exports but also because increased Mexican sales to TPP markets would translate into more U.S. exports, a virtuous cycle. It would result in more jobs on both sides of the border.”
Mexico Hosts First Think-20 Research Summit
Writing for World Politics Review, the Stanley Foundation’s David Shorr reflects on last week’s Think-20, a summit held in Mexico City that brought together 22 representatives from research institutions around the world to discuss this year’s G20 agenda. The February 27 and 28 meetings were the first of their kind held in conjunction with the G20. “[T]he essential function of think tanks is to provide strategic perspective and innovative policy frameworks,” writes Schorr. “Hitching those capabilities more closely to the G20 may indeed prove helpful.”
AS/COA Online covers the Think-20 on its Mexico City Conference blog. The annual AS/COA event held in Mexico’s capital takes place this year on March 13 and will explore Mexico’s global leadership role in the context of its G20 presidency. Visit www.as-coa.org/Mexico2012 for an agenda, analysis, and to tune into the live webcast on the day of the event.
The Mexican Senate on Thursday approved the free-trade agreement (FTA) between Mexico and Peru by a count of 55 votes in favor of the legislation and 47 against. The agreement was signed by the presidents of both countries in April of this year, but stalled in the Senate due to concerns over the potential impact on Mexico’s agricultural sector.
The FTA was praised by Mexican Economy Minister Bruno Ferrari, who said that Peru is growing rapidly and “is a natural option for Mexican producers who are looking to expand their business in Latin America.” Trade between Mexico and Peru has increased 13 percent annually, from $414 million to $1.46 billion between 2000 and 2010, according to the Peruvian Trade and Tourism Ministry. The agreement offered an opportunity for Mexico to diversify its trade agenda, as 80 percent of its exports currently go to the United States.
But opponents of the bill, including Heladio Ramirez Lopez, former head of the National Peasant Confederation and president of the Rural Development Commission, warned that the FTA would threaten Mexico’s ability to export at least 30 of its agricultural products, and may create health risks for the Mexican population. If the treaty had not passed, it could have jeopardized Mexico’s participation in the Pacific Alliance, a new regional trade agreement that includes Peru, Chile, Colombia and Panama- all of which signed an agreement on April 28 to integrate trade production.