The next President-elect should engage with the hemisphere, in conjunction with his North American Free Trade Agreement (NAFTA) partners, through an approach that incorporates the private sector and that builds on the successful macroeconomic and financial sector reforms that have been made in many markets. This approach would focus on a broader policy agenda that supports the economic and social development priorities in these markets since, as we’ve seen with the financial sector, increased capacity and development strengthens the hemisphere as a whole.
The Canadian government has made the Americas a priority, and that has helped private Canadian investors recognize the strengths and opportunities in these markets. A clear sign of the increasing stability is the degree to which these markets have weathered the recent credit crisis, while developed markets continue to work through volatility and uncertainty. This is a positive development for the hemisphere as a whole, and the U.S. should focus its efforts on building on these successes, recognizing the extent to which market stability benefits U.S. economic security and private sector investment in the region.
Of course, high levels of polarization remain within many countries, threatening free markets, democracy and the institutionalization of democratic principles. But that’s a further reason why northern hemisphere countries like the U.S. and Canada have a strong stake in ensuring the entire region is stable, open and dynamically competitive.
There are three main elements that should be part of a new U.S. strategy: develop a sustained commitment to the region; focus on recent successes; and identify strategic sectors.
A meaningful Americas strategy would look very different from the Security and Prosperity Partnership of North America, which was largely fixated on short-term technical changes. It would address longer-term objectives for regional economic integration. It would not be exclusively driven by domestic interests such as drug smuggling, immigration or bilateral trade priorities, but rather it would span U.S. government policies and departments that address the economic and social infrastructure of these countries.
Its success will depend, in part, on establishing the credibility of the strategy with other leaders in the Americas. The potential for tapping expertise and perspectives outside government, as was done through the North American Competitiveness Council established under NAFTA, exists on a broad regional basis. A better understanding of each country’s critical issues, based on input from business and other civil-society leaders, is a key step to finding common ground and receptiveness for joint action.
Above all, an Americas strategy requires a sustained commitment at the level of the presidency and senior administration officials to private- sector development. Although the strategy must set longer-term objectives, it should aim at incremental gains by building on positive developments already underway in the region.
The trilateral approach involving the presidents of Mexico and the U.S. and the prime minister of Canada has been a tremendous success. The involvement of these leaders has renewed interest in the future of NAFTA and focused government and business attention on reform efforts in areas such as border security, transportation infrastructure and regulatory convergence. Continuing NAFTA collaboration will enable governments and businesses to craft a more comprehensive, realistic and ambitious strategy for the broader hemisphere. One way to do this is to look for opportunities for joint discussions between NAFTA countries and others in the Americas in advance of separate bilateral negotiations when possible. This should be done before NAFTA countries embark on their own separate free trade discussions, which occurred recently in the cases of Peru and Colombia.
At the same time, NAFTA leaders as a whole need to do a better job of promoting and selling the benefits of market liberalization and free trade (including within their own countries). The new administration needs to build on the many areas where reform and integration have, in the past, delivered improvements in the standard of living by working cooperatively with various stakeholders (including businesses and labor groups as well). And all three NAFTA countries need to provide technical support and other assistance to governments throughout the Americas to ensure that markets efficiently allocate and distribute gains more equitably to small business, rural areas and sectors that have had a hard time adjusting to the economic changes. Improvements to basic infrastructure—education, transportation, access to capital and telecommunications—can have a significant impact on labor mobility, capital investment and the overall export capacity of smaller firms in these markets.
There are many success stories in Mexico, Chile, Peru, Brazil, and other countries where market reforms spurred foreign investment and led to further economic development. These successes need to be leveraged—especially through assistance for further institutional and infrastructure development. In this effort, the new American strategy should be sensitive to the importance of key sectors such as infrastructure, telecommunications, energy, and financial services to economic development.
Scotiabank’s experience in Mexico is a strong example, in our view, of how the liberalization of financial services facilitates broader economic development and reform. We were the first foreign bank—and, for quite a while, the only bank, despite our previous losses—to reinvest in Mexico immediately after the 1994 Peso Crisis. Today, we are a profitable and growing bank with nearly 8,800 employees, serving more than 1.4 million customers in over 600 national branches—with plans for 50 more branches by the end of this year.
We were the first bank in Mexico to lower credit-card rates and we were the leaders in reintroducing residential mortgage lending. The result has been increased competition, improved access to new products, better regulatory standards, and wider access to credit for Mexican consumers. Overall, the country’s financial system is on solid footing and far more competitive than in the past. That soundness is due to a partnership between the government, the central bank and private-sector banks, that provided needed support to the financial system.
In addition, foreign banks have introduced stronger risk management, greater efficiency and solid corporate governance and sales practices—all of which have provided a significantly stronger foundation for economic growth.
A strong financial sector in Mexico, spurred by public and private sector collaboration, is strategically important to Mexico, the U.S. and Canada, as well as the region. Beginning with the support provided by the U.S. during Mexico’s Peso Crisis, the sustained commitment helped facilitate significant government reform, while leveraging private-sector investment and expertise. The success of the effort was then and still is crucial to the modernization of the region’s economies, in sectors such as manufacturing, agriculture and energy.
Emerging economic changes elsewhere in the hemisphere offer new opportunities. They require governments, the private sector and foreign investors to reinforce reform efforts by focusing on economic development.
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Any opinions expressed in this piece do not necessarily reflect those of Americas Quarterly or its publishers.