In yesterday’s New York Times, I noticed a few separate articles about Latin America and was struck by the impact the U.S. financial crisis/downturn is having in the rest of the hemisphere. In several ways, legal and illegal, we have been supporting economies which will now grow more slowly and needed investment will slow down. What effect it may have on reforms is unclear - Thomas Friedman has argued that huge oil revenues actually slows reform in many countries.
Just looking at Mexico, they’ll be losing money three ways:
- Reduced remittances
- Declining oil sales and prices
- More controversially, possibly declining drug smuggling and sales
I’ve provided the headline, URL link and brief quotes from each article. Do these connections make sense to you? What other impacts going both ways across the border might we see?
“Fewer People Entering U.S. Illegally, Report Says”
“..for the first time in nearly a decade, the number of people entering the country illegally was lower than the number arriving through legal channels.”
“Central banks from Mexico to Brazil have projected the biggest declines in remittances from the United States in more than 10 years.”
“In Mexico, where remittances are the second-largest source of foreign income after oil, officials projected a 12 percent drop this year, the biggest on record.”
“After Financial Crisis, Uncertainty and Lectures From Abroad”
“In only a few days, Latin American leaders have gone from schadenfreude to fear. Despite strong economic growth this decade and some aggressive efforts to break free of the American orbit, there is a growing nervousness that once again Latin America cannot escape the globalized connections in the financial sector that run through the United States.”
“…the financial crisis has exploded far beyond Wall Street. Whipsawing global markets are already having a ripple effect across Latin America. As nervous investors pulled money out of emerging markets, Brazil’s currency, the real, plunged 16 percent against the dollar last month, resulting in hundreds of millions of dollars in losses at large food and eucalyptus-pulp exporters that placed bad bets on the direction of the real.”
“Mexican President Proposes Decriminalizing Some Drugs”
“President Filipe Calderon who has made fighting drug traffickers the centerpiece of his administration, proposed legislation on Thursday that would decriminalize the possession of small quantities of cocaine and other drugs for addicts who agreed to undergo treatment.”
“A recent government survey found that the number of drug addicts in Mexico had almost doubled in the past six years to 307,000, while the number of those who had tried drugs rose to 4.5 million from 3.5 million.”
“Drugs used to flow through Mexico to the United States, and they still do, but an increasing amount of those narcotics now stays in Mexico to feed the habits of domestic consumers.”
I’m just extrapolating, but as smuggling gets harder will less illegal immigration, and U.S. recreational drug users cut back their budgets, the cartels will look at selling more in Latin American countries.
“Falling Oil Price Is a Positive Note Amid Turmoil”
“While consumers welcome the decline, which will reduce the nation’s $1.3 billion daily oil import bill, oil producers are wary. Mexico said it might have to cut its budget next year as petroleum revenue dropped. Countries like Russia and Venezuela, which have been riding a wave of energy-fueled nationalism, could be forced to scale back their ambitions and energy projects that require enormous financing could be delayed.”
October 4th, 2008 at 8:55 pm
The financial market panic, and it is a panic, has interesting implications for modern globalization. Is interdependence a good thing only in good times, or bad times as well? Is interdependence psychological or concrete? The associations implied in the quotes make sense, but the broader discussion about interdependence, and how much is productively prudent, remains to be had. I do not think more interdependent globalization is advanced economy golden rod. Across borders, comparative trade, based on place innovation, is the progressively safe answer.
October 5th, 2008 at 10:58 pm
In “The World is Flat” Friedman tells about being accused of favoring globalization. He says something like “I guess I do, but I’m also in favor of the sun coming up tomorrow. I don’t have much influence on whether either one happens.”
Globalization and interdependence are going to happen whether we like it or not. Money, corporations, crime, pollution, communications, technology all are globalized and making the world interdependent. Nation states have less and less influence on whether it happens. What they, and Richard’s mega-regions, can do is decide how they’re going to navigate in the new reality.
October 5th, 2008 at 11:06 pm
I guess I would add people and labor to the things that are increasingly globalized. This is shown by legal and illegal immigration flowing into and between all the industrialized countries, by the increased mobility of young people looking for places to live, by the numbers of international students.
October 6th, 2008 at 1:02 pm
Another effect, perhaps as dramatic, will be the reduction of US consumer demand for Mexican products. The most salient example is automobile production, a leading industry south of the border. As sales of Chrysler and GM products decrease, Mexican plants experience “technical stoppages” ever more often. Several cities in Mexico’s industrial north are mono-industrial and their production chain is already suffering…