“We are going to carry out an anti-inflation plan of mutual aid for growth, for commercial and economic exchange with Latin American countries.”
As US lawmakers, both current and former, escalate their war of words on Mexico’s government while also raising the stakes over Mexico’s proposed partial ban on GMO corn, Mexico’s government is looking to strengthen its ties with like-minded governments to the south. To that end, it has proposed forming a common front with at least five other Latin American countries to combat inflation, especially in food prices, across the region.
“We are going to carry out an anti-inflation plan of mutual aid for growth, for commercial and economic exchange with Latin American countries,” Mexico’s President Andrés Manuel Lopéz Obrador (AMLO for short) said during his daily press conference last Thursday.
For the moment, the fledgling plan is sparse on details. AMLO said the agreement will largely consist of removing tariffs and other trade barriers that prevent food from reaching domestic markets at low enough prices. Producers, distributors, merchants, importers, and exporters will be invited to join the initiative, he said.
“We are starting, we are going to start like this and little by little it will expand,” AMLO said. “We are going to invite producers, distributors, merchants, importers. Who sells, who buys. Get prices, remove tariffs, barriers that prevent you from obtaining food at a good price.”
It all sounds rather neoliberal but the governments AMLO has invited to join the initiative are exclusively left leaning. They include Lula’s newly formed government in Brazil, Gustavo Petro’s in Colombia, Luis Arce’s in Bolivia, Alberto Fernandez’s in Argentina, Xiomara Castro’s in Honduras and, most controversially for Mexico’s neighbour to the north, Miguel Diaz-Canel’s in Cuba. All have apparently agreed to take part in a teleconference on April 5, to be followed shortly thereafter by a face-to-face meeting.
“The foreign ministers, secretaries of Finance, Economy, and Commerce are going to start working to seek exchanges in exports, imports of food and other goods with the goal of confronting the high cost of living together,” AMLO said.
In recent years the AMLO government has tried to drive regional cooperation in Latin America through mechanisms such as the Community of Latin American and Caribbean States (CELAC). In 2021, AMLO proposed using CELAC as a vehicle to create in Latin America something similar to the European Economic Community, the six-member economic association formed in 1957 that would eventually evolve into today’s 27-member European Union.
But he also emphasised “the need to respect national sovereignty and adhere to non-interventionist and pro-development policies” as well as ensure that any resulting structure is “in accordance with our history, our reality, and our identities.” AMLO hopes CELAC will eventually supplant the widely reviled Washington-based Organization of American States (OAS) as the main institution for intra-regional relations.
A Historic Bugbear
With few exceptions, inflation has been a historic bugbear in Latin America. In Brazil and Mexico, the region’s two largest economies, anybody over the age of 40 can remember what life was like under high — or in Brazil’s case hyper — inflation. They don’t want to go through it again. To keep inflation in check and defend their currencies against a rapidly strengthening dollar, the Banco Central do Brasil and Banco de Mexico (Banxico for short) have respectively raised their benchmark rates 12 and 14 times over the past two years.
The results have been mixed. While the consumer price indices in both countries have falled in recent months, they still remain painfully high, at 5.77% in Brazil and 7.91% in Mexico. And the countries’ double-digit interest rates are placing further strains on struggling businesses and families. In the case of Brazil, Lula has even locked horns with the central bank over the high rates. Meanwhile, the Mexican peso has risen to a near 5-year high against the dollar, in part because it is one of the few large economies in the world offering a positive real interest rate. The Brazilian real has also strengthened somewhat in recent months.
In other parts of the region, inflation is an even bigger problem. In early February, Argentina’s central bank unveiled plans to issue a new 2,000 peso note in response to the country’s soaring inflation, clocking in at 98% in January). In Colombia, the annual inflation reached 13.28% in February, its highest reading since March 1999. Inflation is also close to decade highs in Chile (12.3%) and Peru (8.65%). Two outliers at the lower end of the spectrum are Ecuador (2.5%) and Bolivia (2.9%).
In contrast with Mexico, Brazil and many other economies in the region, Bolivia’s benchmark interest rate is currently relatively low, at just below 3.5%. There are two main reasons why Bolivia has been able to outperform on inflation while keeping rates relatively low: first, for more than a decade the government has operated a fixed exchange rate with the dollar; and second, it provides state subsidies for gasoline, food and other basic products. However, as a consequence of these long-running policies, Bolivia’s foreign currency reserves are running low…
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