Obama Heads South Again

By Peter Hakim
Infolatam, April 4, 2013

Una versión de este artículo en español se encuentra aquí.

Since his re-election in November, President Obama has met with only one Latin America leader, Mexican President Peña Nieto. That he will be traveling to Mexico this month to meet with Peña Nieto again highlights the fact that, among the nations of Latin America, Mexico is overwhelmingly preeminent for US interests and priorities. There is simply no other country in the region (or perhaps in the world) that is more important to the United States. Moreover, the prospects are greater today than at any time in the past two decades for the US and Mexico to upgrade the relationship and increase its benefits for both countries. This is a striking contrast with much of the rest of Latin America, where US relations have turned cooler and more distant, and the US is becoming less and less relevant.

Obama will also be visiting Costa Rica, where he plans to meet with th00001e presidents of five Central American republics along with the leaders of Panama and the Dominican Republic. Like Mexico, all seven of them have free trade agreements in force with the US—and, although to varying degrees, they all want to want to further strengthen ties to the US. Many of them need US support to fend off criminal organizations, which present a growing threat to the rule of law and democratic stability across the region. Others are facing a range of serious economic, social, and institutional difficulties. Only a few countries in this region have shared in Latin America’s boom in the past decade.

Mexico is a country far more confident of itself today than when President Obama first entered the White House in 2009. Despite a largely unabated wave of crime and violence and multiple other problems, Mexicans increasingly feel their nation and government is headed in the right direction. They are MORE optimistic about nation’s economy, which is expanding at a healthy pace after many years of sluggish growth. Some are encouraged to think they can offer a challenge Brazil’s ascendancy among Latin American nations and are able to compete with china in the US market. The mood will be different in Central America, where pessimism is widespread and several countries feel they are under siege, unable to get their politics, economy, or security in good order.

Mexico’s fortunes have taken a sharp turn in recent years. During the six year presidency of Felipe Calderón, Peña Nieto’s immediate predecessor, center stage was fully occupied by Mexico’s brutal pandemic of crime and violence, which overshadowed almost everything else that was happening in and to Mexico. Public security issues were Calderón’s number one priority and they loomed large in the US-Mexican relationship. Washington became increasingly alarmed about the flow of drugs from Mexico, the prospect of violence spilling into the US, and—most of all—by the dangers of a severely weakened (and, according to some perhaps even an eventually failing) state on the US border. In Mexico, many blamed the US for the rash of criminal violence, pointing to the huge American appetite for drugs and the relentless flood of illegal weapons coming from the US into Mexico. Most Mexicans viewed US security assistance—through the so-called Merida Initiative—as too little, too late, and of questionable value.

While crime and security remain first order concerns, the Peña Nieto government has not yet made clear its strategy for dealing with them, although it has become clear that the new administration is seeking a different security relationship with the US.

Peña Nieto is also intent on turning the public spotlight on a different set of priorities—mainly directed to shoring up the Mexican economy, making it more productive, resilient, and equitable, and building a more robust economic partnership with the US. Obama, too, in his announcement of the visit, emphasized economic themes and immigration.
 
Not since 1993, when the US Congress gave its approval to NAFTA, the free trade agreement between the US, Mexico, and Canada, have the prospects been better for dramatically improving what is already a remarkably strong bilateral economic relationship. In the past two decades, US-Mexican trade has grown to some $500 billion, rising at a pace almost twice as fast as US commercial growth with the rest of the world. Today, Mexico is running neck and neck with China as the US’s second largest trade partner, and some projections foresee Mexico overtaking Canada and emerging as America’s top export destination in the next half dozen years. Mexican producers, moreover, are firmly incorporated into US supply chains, to the extent that US-made products make up nearly 40 percent of the inputs for Mexican exports.

Within the coming months, both Mexico and the US appear ready to move forward with critical, long-deferred domestic policy changes that will open an array of fresh economic opportunities for the two nations.

Washington is on the verge of legislating a sensible and humane reform of its immigration system. This would, in the first instance, eliminate (or at least substantially alleviate) a persistent source of tension in US-Mexican relations and facilitate cooperation on many other fronts. A new policy approach would also be a boon to both economies. It would enable newly legalized migrants to take on higher paying, more secure jobs, adding to their already sizable contributions to the US economy and likely increasing the remittances they send to Mexico (perhaps by as much as ten percent or some $2.5 billion annually, according to some experts). A new temporary guest worker program should also benefit both nations.

In Mexico, Peña Nieto’s government has embarked on a far-reaching program of reform which, if it succeeds, will transform Mexico into a far stronger economic partner for the US. The most potent changes contemplated are the opening of Mexico’s oil and gas production to foreign investment and a thorough overhaul of Pemex, the country’s national oil company. Together they would help to assure that Mexico remains a world class energy exporter and a major source of oil for the US market. In addition, the changes would open the way for Mexico to exploit its huge reserves of shale gas and oil, now estimated to be the fourth largest in the world. It is worth noting that energy and labor markets were the two most critical sectors omitted from the NAFTA accord.

But Mexico’s reform ambitions go far beyond the energy sector. The Peña Nieto administration has already restricted the power of teachers’ unions to obstruct desperately needed changes to Mexico’s mediocre educational system (and has even managed put the ironfisted leader of the teacher union in jail on charges of corruption). The new government has also taken on some of Mexico’s wealthiest and most influential business owners in an effort to curtail monopoly power in the telecommunications and broadcasting industries. And it is pressing hard for fiscal alterations that would expand annual tax revenues—which are currently among the lowest in Latin America—and raise the funds necessary for infrastructure development, education, public security, and social services. Together, the proposed changes, if implemented, would provide an enormous boost to Mexico’s economy.

Can all this be accomplished? There is certainly a good deal of optimism in Mexico, but the outcome is still far from certain. Mexican nationalism, as it has many times in the past, could end up blocking or severely diluting energy reforms, which requires revisions to the Mexican constitution. Powerful labor unions, well-connected business leaders, and media moguls remain formidable roadblocks. Still the Peña Nieto government has built up some considerable political momentum.

Its most critical achievement has been the three-party “Pact for Mexico”, which the government negotiated with its two major rivals on the left and right. Although it is mostly vague about the crucial and contentious details of specific changes, the pact offers an essential framework for reform across many issues, and serves as the basis for structured talks among the parties. Wide areas of convergence have been identified, and there are now expectations of forward movement rather than the more traditional political gridlock—although in recent weeks the pact has been threatened by rising tension among the parties. 

Because Mexicans like and respect Obama, his trip to Mexico may lift Peña Nieto’s standing a few points, but the visit should not be expected to advance the government’s program of reform. That will continue to depend on the political skills of Peña Nieto and his advisors. Obama knows that any effort to influence political outcomes in Mexico will be counterproductive—just as Mexican politicians know to keep their distance from US debates on immigration.

The second stop on Obama’s trip, San Jose, Costa Rica, will provide the US president a much less positive panorama. Obama will likely be bringing good news about immigration reform to a region that has sent an unusually large number of migrants to the US and has come increasingly to rely on a steady flow of remittances from its citizens there. But it is drug-related crime and violence that will dominate the discussion, in part because these are the issues that dominate daily life in many countries of the region. Even Costa Rica, one of Latin America’s most successful nations, with a solid record of democratic governance and continuing social and economic progress, feels threatened by the region’s criminal organizations and has watched its murder rate rise rapidly in recent years. Homicides rates in several countries of the region are far higher, indeed, among the highest in the world, rivaling the death tolls in war torn African nations. It should not be surprising that the US spends the bulk of its aid money in the region on security matters— but the region needs a great deal more help than the US is providing.

Central America presents far more limited economic opportunities for the US than Mexico. It is instead mostly a distressed area of great need. Unlike Mexico, it cannot mount much of a response to its security threats without outside assistance. Central America’s economies are considerably weaker, its institutions less robust, and democracies more fragile.

A strong US commitment is essential here. No other country in the world has the historical, demographic, and economic ties to Central America that the US does—and no other government is likely to come decisively to the region’s aid. But President Obama needs to pay close attention to views of the Central American leaders, many of whom have sharply different views from the US on critical issues of security and drug policy, and they deserve Washington’s attention.

According to the State Department, the US has invested some $500 million dollars in security aid over past five years, which has not been enough. It is only about one-eighth of what Washington provided Colombia for a whole decade, and is substantially below what US security assistance to Mexico. But it is not just that the US is shortchanging its aid program in Central America. There is a need for Washington to fashion a broader, longer term policy toward the region that deals with a range of issues—economic and social advance, education and health programs, energy development, and institutional repair and strengthening. Central America’s leaders are interested in more cooperation with US, but their interest may flag if the US does not respond satisfactorily and conditions continue to deteriorate

Both Mexico and Central America present a test for the US. If we cannot find ways to respond to opportunities in Mexico and the needs of Central America, it hard to imagine the US having any serious policy or strategy for the rest of Latin America. Both Mexico and Central America want to build closer ties to the US. It will be far harder elsewhere in Latin American, where many countries are increasingly ambivalent about their relations with the United States.

Peter Hakim is President Emeritus and Senior Fellow of the Inter-American Dialogue.