The Washington Diplomat / May 2014
By Larry Luxner
Move over, Asian tigers. It looks like the four so-called “Pacific Pumas” — Chile, Colombia, Mexico and Peru — have become the latest darlings of the investor crowd.
The four have joined forces as the Alianza del Pacifico [Pacific Alliance] — a trade bloc boasting a combined population of 215 million and GDP of $2.2 trillion. Together, the four countries represent nearly 36 percent of Latin America’s total GDP and just over half of its foreign trade.
“Moisés Naim has called this the most important alliance you’ve never heard of,” said Eric Farnsworth, vice-president of the Americas Society-Council of the Americas, quoting the prominent global thinker and syndicated columnist. “Direct concrete steps have already been accomplished, and the United States recognizes the importance of developing an economic relationship with the Pacific Pumas.”
Farnsworth was one of eight speakers at a Mar. 13 panel that analyzed why these four emerging markets are so appealing to foreign investors. The event, co-sponsored by AS-COA and the Bertelsmann Foundation, featured three ambassadors — Colombia’s Luís Carlos Villegas, Mexico’s Eduardo Medina Mora and Peru’s Harold W. Forsyth.
Also on the panel: Mauricio Hurtado, chargé d’affaires at the Chilean Embassy; Annette Heuser, executive director of the Bertelsmann Foundation; Samuel George, the foundation’s project manager, and Dr. Antonio Estevadeordal, manager of integration and trade at the Inter-American Development Bank.
“The puma is a powerful, fast, agile animal that’s efficient and resourceful. This New World cat can thrive in mountainous highlands and humid rainforests. We think it’s a fitting mascot for the emergence of Mexico, Colombia, Peru and Chile,” said George in introducing his 52-page study, titled “The Pacific Pumas: An Emerging Model for Emerging Markets.”
George said this new model contrasts sharply with Brazil’s disappointing growth, Argentina’s looming sovereign default and Venezuela’s worsening economic chaos, which have all dominated regional news coverage in recent months.
“Let’s face it. Since the global financial crisis, areas of optimism have been few and fleeting. Whenever we hear about Latin America, it’s generally negative,” he said.
“This study suggests that quietly, Colombia, Chile, Mexico and Peru have taken big strides toward stabilizing their macroeconomic foundations, making major inroads against poverty. The Pacific Alliance has created quite a buzz in Washington. If there’s one thing we can take from this conversation today, it’s that the momentum of these four countries is about more than an incipient integration pact. We believe these four have made advancements that go far beyond the scope of the Pacific Alliance.”
At present, 30 nations have official observer status within the alliance, including 10 EU members. And in February, Costa Rica signed a declaration of intent to join the bloc, a procedure estimated to last about a year.
“It will mean a tremendous added value when Costa Rica joins,” said Peru’s Forsyth. “In digital technology, it’s probably the most advanced of all our countries, and its services sector has a lot to offer.”
Coining a new buzzword — “pumanomics” — George said that despite overall turbulence in emerging markets worldwide, the four signatories to the alliance have enjoyed low inflation and strong growth.“
In Mexico, we’ve seen their willingness to address long-term bottlenecks even at the expense of short-term growth,” he said. “In Colombia, we’re seeing important steps toward establishing a lasting peace. For mid-size emerging markets like Peru or Chile, it’s imperative to find a niche in global trade. Even as the Doha Round has sputtered, these countries have created linkages the world over.”
Significantly, all four have free-trade agreements with the United States, Canada and the 28-member European Union, while China, Japan, South Korea, Singapore and India have all concluded FTAs with at least two of the Pumas. In addition, Mexico, Peru and Chile are actively participating in current talks for a Trans-Pacific Partnership (TPP).
Since 2005, economic growth in the four countries (with the exception of 2009, a year of global economic chaos) has exceeded 5.5 percent. That compares favorably to the Association of Southeast Asian Nations (ASEAN), whose 10 member states averaged 4.8 percent growth over the same period.
The four Pumas take the top four slots in the World Bank’s latest Ease of Doing Business in Latin America survey, and inflation has remained quite low, ranging from 1.7 percent in Chile to 3.6 percent in Mexico last year.
“These countries are far from perfect. Violence, corruption, urban and rural poverty remain a fact of life for millions, and this study does not shy away from that. But thanks to good work and timing, these four countries have a golden opportunity,” said George. “It’s not about how many FTAs you have on paper, but how many jobs you can turn them into.”
Meeting Feb. 10 in the Colombian port city of Cartagena, the four nations’ heads of state agreed to abolish 92 percent of tariffs on goods and services traded between them within a year. Tariffs on the remaining 8 percent — consisting of sensitive agricultural products like bananas, coffee and beans — will be phased out over a 17-year period.
“We have moved forward,” declared Colombia’s Villegas, commenting on the puma designation. “I want to be around when we move to the whales and lions.”
Animal mascots aside, Villegas says it’s hard to overestimate the weight of this alliance, which seeks to counter the protectionist policies of Latin America’s other leading trade bloc, Mercosur (consisting of Argentina, Brazil, Uruguay, Paraguay and Venezuela, with Bolivia as an associate member).
“This is the most important effort at Latin American integration in 100 years,” said Colombia’s envoy. “Fate brought together four heads of state who had the political will and internal muscle to take decisions that would open their economies in trade, investments and services. Now, for the first time, we’re trying to do business together in places like Eastern Europe, Asia and Africa — to have our trade officers work together and get investments for all four countries instead of just one.”
Added Mexico’s Medina Mora: “This is not a run-of-the-mill trade initiative. It’s not political, but it’s also no accident that we think alike. The Pacific Alliance members mean what they say, and then do what they say they’ll do.”
Forsyth said the process of integration dates back to 1960, when seven countries established the Latin American Free Trade Association in Montevideo, Uruguay. By 1980 — with the addition of Bolivia, Colombia, Ecuador and Venezuela — it had reorganized into the Asociación Latinoamericana de Integración, or ALADI.
But unlike the Pacific Alliance, ALADI sought the elimination of tariffs only on goods — not services — and its members did not coordinate policies.
“The reality is that tremendous damage caused by the debt crisis destroyed our options for integration in the 1980s. We felt we had no future.”
Gradually, he said, “we began seeing the future as a challenge, and a few of us began to exchange views. As we began sound economic policies in our own countries, the next step was to think, ‘why don’t we start working together?’”
It’s clear that efforts by the four Pumas to tap into global trade have paid off.
Spurred by strong copper prices, Chile’s trade with China jumped from $1.34 billion in 2000 to $17.94 billion in 2012, according to the report. Peruvian exports to China, meanwhile, increased 42 percent between 2010 and 2012, due at least in part to the Peru-China FTA, which came into effect in 2010.
Mexican trade with the United States has risen more than 500 percent in the first 20 years of NAFTA, while Colombian exports are up nearly 50 percent just since 2010. It’s significant that the United States now exports more to Mexico than to China, Brazil, Russia and India combined. It also exports more to the Pacific Alliance countries than it does to the EU.
Chile’s Hurtado said the alliance can act as an important bridge between Latin America and the entire Asia-Pacific basin — and promised that Michele Bachelet, who served as president from 2006 to 2010 and was inaugurated president last month for a second term — will continue its “pragmatic, non-antagonistic” approach towards other integration mechanisms while striving for social equality at all levels.
“For many years, there have been demands to achieve a fairer society, and the new Bachelet administration will allocate a great deal of effort to achieve those goals in coming years,” he said. “Integration with Latin America is going to occupy a big part of our foreign policy efforts.”