The Koreas and the Future of East Asia

Recent events in the Korean peninsula have reminded the world that although there's been a ceasefire for 57 years, North and South Korea are still officially at war with each other. The anointment of Kim Jong Un as North Korea's new "supreme leader" has been accompanied by hostility in the international arena. These actions are probably designed to bolster the new leader's image internally, and the very fact that North Korea can get away with it is probably based on two facts:

1. They have China's support

2. They have nuclear weapons

However, the filtration the the US State Department's cables by Wikileaks has revealed some very interesting information regarding China's opinion of North Korea. Simply put, they're tired of them because they've outlived their usefulness as allies. China's development is at a stage where economic issues are considered more important than political ones. If the choice is between increased trade with South Korea and Japan or ideological support from a pariah state (whose ideology, by the way, is so different nowadays from China's as to be the complete opposite in economic and social issues), then there's really no choice at all because there's only one real option. The issue then is coming up with a way to bring about regime change without risking nuclear war.

The real force in North Korea isn't Kim Jong Il but the military. He's still in power because it's easier to rally popular support for a demi-god "chosen one" than for secular armed forces. Any proposed solution will have to consider this fact as pivotal. Then the real question is how to get military leaders to relinquish their support for Kim. The answer: power and money. They control both right now, but they are eroding rapidly as North Korea's economic fortunes go from bad to worse. They have one card to play, and that's the nuclear deterrent, but they know that if they use it they'll have lost all their bargaining power.

South Korea is in a position to bribe military leaders, providing financial security and probably even political appointments in the new regime. They could probably even get Japan to pitch in, as the monetary cost would be a trifle compared to the cost of war for these nations. China would quietly give their nod of approval, as their preponderant interest has to be the stability and economic development of the region. The costs have started to outweigh the benefits for China of having North Korea as their protege, so things should change sooner rather than later. US interests are aligned with that of South Korea and Japan, so they would back a unified proposal from these two countries.

The final consideration concerns the ultimate fate of North Korea. Will it be absorbed by South Korea, China, or remain an independent country? What will Russia's position be?

Mexican Government Anticrisis Plan

Yesterday the federal government made public its counter-cyclical action plan which seeks to alleviate the impact of the current economic crisis on the population. The plan rests on five pillars: jobs, family economy, small and medium corporations, infrastructure investment, and finally public expenditure.

Jobs: Expand the temporal jobs program, allow for withdrawals from retirement accounts, expand social security coverage to unemployed workers.

Family economy: prices for gasoline will be frozen during all 2009, gas prices will be lowered 10%, credits will be given for purchasing energy-saving appliances, and entry-level housing mortgages will be expanded.

Small and medium corporations: electricity costs will be reduced 9-20%; the federal government will make 20% of its purchases to small and medium companies; a $5 bln peso program to support SMEs; government financing will increase 21%, and rural credits will go up 10%.

Infrastructure: the National Infrastructure Program will be accelerated; PEMEX will receive an additional $17 bln pesos for investment; additional credits of $65 bln pesos will be given in order to guarantee to realization of the main infrastructure projects of the administration.

Public expenditure: a new Goverment Accounting Law, and swift allocation of resources for their prompt use.

The total cost of the plan is of approximately $60 bln pesos, about US$4.5 bln at today's exchange rate, which is ludicrous considering a national GDP of close to US$900 bln. Furthermore, the actions which will probably have the biggest effect are the freezing of energy prices, which will cause yet another distortion in the economy. That's the kind of political decision that gets made in an electoral year and that later becomes impossible to revoke.

2009 GDP Growth per country - Funny Figures?

Most of the information about the current economic slowdown (or meltdown, or apocalypse) gives the impression that the current situation is the worst in decades. However, when going over 2009 GDP forecasts the outlook isn't quite that grim. For example, The Economist predicts growth at -0.2% for the US, 0% for Japan, 0.2% for Germany, 8.0% for China, and 6.5% for India.

As for Latin America, growth prospects for the whole region are 2.2%, with Mexico looking at 0.9%, Brazil at 2.7%, Argentina at 2.5%, Colombia at 2.5%, Peru at 6.4%, and Chile at 2.8%. Even the oil dependent economy of Venezuela is set to grow 1.8%.

Considering the world's population will grow by about 100,000,000, or roughly 1.5%, and the World Bank predicts 0.9% global GDP growth, there will be an average decrease in income per capita. So, either the media focuses only on the worst news out there, or GDP statistics are way off and we are in for a rough ride.

The Big Three (Or Is It Two?) - Recovering Their Footing in the US

For some time now we have been hearing dire news coming out of Detroit regarding the performance of GM, Ford, and Chrysler. Even before the collapse of the stock market, their share of the US car market had steadily been declining, losing ground to Asian manufacturers such as Toyota and Honda. Burdened by pensions and union contracts, these companies make less money per car sold than their competitors. Their gas-guzzling fleets, so popular for so long, suddenly seem dated and unaffordable to the average consumer.

What to do then? Evidently, the priority has to be redesign of their models to make them competitive again, and the Big Three's lobbying for a bailout package is sold precisely as an investment for retooling plants and developing new, competitive vehicles.

However, the other main issue remains. How can they compete with foreign companies that have much less expenses and are much more flexible? Something that is not said too loudly but is well known is that all three companies (Ford in particular) intend to offshore car production, with Mexico being the main beneficiary because of its close distance to the US, lower wages and costs, and competitive exchange rate.

What do you think? Will the Big Three be able to get a bailout package when Congress knows full well that the intention is to export jobs and invest overseas? Will they be able to survive this downturn, betting everything on their new product lines and a government rescue of the employees' pensions?

Obama Victory - Is Latin America Even on the Map?

Now that it is confirmed that Democrat Barack Obama defeated John McCain, and that Dems will hold on to and extend their control of both the House and Senate, we can start thinking what this will mean for US foreign policy agenda.

I think that the government's priorities will be as follows:

1. Afghanistan (and Pakistan to a lesser degree): recovering the lost ground to Al Qaeda and taking decisive steps to finally eradicate this organization. From a national security standpoint, this is a far greater threat than Iraq, because a fortified Al Qaeda will definitely try to inflict serious harm to US and its allies' interests, as well as attacking the general population of these countries.

2. Iraq: the idea that the country is headed for civil war as soon as the troops are brought home is somewhat diminished, but there is a real threat of regional instability if a weakened national government if left alone to guard its security interests and territorial integrity. Arguing national security, Iran, Syria, and even western allies Turkey and Saudi Arabia would be tempted to act preemptively and enter Iraq before their neighbors do.

3. China and Southeast Asia: China is already the main exporter into the US (link) and the third destination for its exports, so commercial issues will continue to dominate the rest of the agenda. China, along with neighbors such as Malaysia, Thailand, the Philippines, and Vietnam, will definitely continue to expand their participation in world trade, displacing Latin American producers of both commodities (South America) and finished goods (Mexico, Central America) in the US market.

4. Russia: becoming ever more assertive as the price of oil went up, Russia was capable of acting upon its own national security interests without having to worry about the consequences. When NATO expanded east in the 90's Russia was powerless to act, but now the situation is quite different and it should be no surprise to anyone if we see repeats (or variations) of what happened in Georgia some months ago. Lower prices of oil will dampen these acts but will not stop them because Russia is seeing its long-standing buffer zone disappear, and it will do anything in its power to revert this. Granted, Europe has to play a leading role in bringing back regional balance, and trade with Europe is vital for Russia (especially with Germany, who depends on Russian gas for its energy needs), so the possibility of conflict is very limited. However, the US will definitely have to devote serious resources to this issue.

5. Israel/Palestine: this issue will forever be a priority because Israel is probably the most solid ally the US has in the world, and there is huge political pressure within the US government (lobbying, elected representatives) to find a solution to this conflict (none foreseeable any time soon).

6. Mexico (finally!):I think a distinction has to be made between Mexico and the rest of Latin America, because sharing a border creates issues that don't exist with all the other countries in the region.

a. Migration is still the top issue. Millions of Mexicans living in the US provide Mexico with one of its most important sources of foreign revenue, and this income is usually directed to small communities in middle and low-income states (central and southern Mexico, though not as much to the southernmost and poorest states). Because of this the Mexican government will continue to push for migration reform, vying for a stable and predictable way to formalize what already happens informally.

b. Trade: we all know NAFTA has been a great success for Mexico, but only parts of the country have truly benefited. Border states have gained the most because manufacturing capacity has moved there in order to supply the US market on short notice. Another big winner is Mexico City, focusing on all service industries. However southern Mexico has seen little gains as it has no real competitive advantages over the north. Poor infrastructure, lower education levels, and geography all play a part in hindering the region's progress. Finding a way for NAFTA to benefit the whole country is one of the biggest challenges the Mexican government faces, and the US should have an interest, because development will slow down immigration and the problems it brings with it.

c. Drugs: evidently, the US has a major interest in having a stable and secure neighbor on its southern border, and the drug trade is by far the most important issue the US needs resolved. US-Mexico cooperation has paid off with the arrest of several major heads of drug cartels and the disruption of their business. The violence seen now in Mexico attests to this progress, as "the deck is reshuffled" and drug dealers are scrambling to secure territories, supplies, and markets. Something relatively new in the media in Mexico is the issue of weapons coming in from the US. It is well known that this is a common phenomenon (guns are illegal in Mexico), but until recently there was little talk of cooperation between the US and Mexico on controlling this flow. This issue will be very difficult for the US, as there are some very strong lobbyists and corporations in the US with interests in maintaining the statu quo.

The State Department definitely has its hands full, and Latin America is not even close to the top of the list, so we shouldn't expect any changes in foreign policy coming out of the US.

US Elections - Impact on Latin America

So, the elections are finally upon us and the effect of the next US president in Latin America is still out in the air. Something very curious usually happens in opinion polls across Latin America regarding the US: people usually favor Democrat candidates and governments, although the policies of these (pro-unions, anti-trade when compared to Republicans) definitely benefit the rest of the continent less than Republican governments.

Why is this? Is it that Latin Americans are generally more left-wing and agree with Democrats on more issues than with Republicans? Is it that Latin Americans are more morally conservative, finding more points of coincidence with the Republican ideology? Pragmatically, the single most important issue that can benefit Latin America is trade, because it promotes economic growth, creates jobs, and solidifies economic stability. Why then the incongruency?

Thanks for your input!