04.30.09
Posted in Latin America, Negotiating, Obama Administration, Trade Policy at 4:20 am by Administrator
The recent Summit of the Americas in Trinidad marked a positive change in US attitudes towards Latin America. Much has been made of the interchanges with Hugo Chavez but the real story is that the Obama Administration has decided to approach Latin America as an equal rather than the big brother (bully?) to the north. I suspect that in the long run the new stance will do more to undercut the likes of Chavez than all the bully tactics of the Bush Administration.
The one country absent from the gathering of hemispheric leaders was Cuba. There have been some movements by Cuba on loosening the grip of the dictatorship since Raul Castro took over from his brother Fidel and Obama responded by allowing greater contact between families in the US and Cuba. Obama is wisely playing a shrewd negotiating game by giving small concessions. I think the small steps will lead to wide fissures that will result in a return to democracy. Whenever democracy arrives in Cuba, it take place in a relatively short time and from within (not caused by external pressure). The US embargo policy lost its effectiveness decades ago but it can still be traded away for reforms.
The last important result of the Summit of the Americas was that the Obama Administration placed itself squarely in the camp of preserving free trade. As we face the worst recession since the Great Depression, the lessons of how protectionist measures (Smoot-Hawley bill) prolonged the Depression have not been lost on the Obama Team. USTR Kirk announced that the US would not seek changes in the NAFTA agreement and would push for ratification of the draft Free Trade Agreements with Panama, Colombia and South Korea. These are all good agreements and we should urge our Representatives and Senators to approve the measures. In this global economic downturn, we need to reaffirm the need for open global markets that will promote economic recovery.
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03.31.09
Posted in Cross Cultural, Latin America, Strategies at 6:51 pm by Administrator
Hillary Clinton’s visit to Mexico last week centered around ways to deal with the violence surrounding the trade in illegal drugs. The Mexican government has been cracking down on the cartels, resulting in open conflicts with the authorities and among the drug runners. Now the violence has landed on our doorsteps. In the past, there have been drug wars on the streets of major cities (remember Miami Vice and more recently CSI Miami?) but the spill over effect along the border is something new. And the Mexican authorities did raise a valid point with Secretary Clinton that the US was the source of the high powered assault weapons.
My first international posting was in Colombia at the beginning of the “War on Drugs.” We had about 160 US prisoners in Northern Colombia (I was stationed in Barranquilla and our Consular district covered the northern coast). The attitude among many Colombians was that drug use was an American problem and if their impoverished country made money off of the stupid “gringos” then no harm was done. The problem was that the corruption that accompanied the drug trade poisoned every aspect of Colombia’s society and the country was been locked in internal strife for the past thirty years. The Mexican authorities learned from that lesson but the cost of attacking drugs will be very high.
What has this to do with business? When you are conducting business in a country that is riddled with drug corruption, you need to be very careful of vetting whom you are doing business with. The “families” of the drug cartels will have the money in the country. I would recommend strongly against using as an importer or agent anyone involved with the trade. If you can’t find any reliable agent not involved with the trade, I’d consider skipping that country. Consider what the impact would be if it appeared on the front page of the New York Times that your company was involved with drug traffickers. If you need help in vetting an agent, use your usual sources — other businesses, banks, internet searches and Embassies. I always found that the US Embassy is good about telling you who you should be careful about, even if they can’t tell you exactly why.
In addition, if you are operating in a country where there is considerable drug violence, you need to take the advice of your security advisers or Embassy very seriously. You don’t want to get caught in the middle of random violence or worse involved as a target of the cartels.
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02.28.09
Posted in Economic Analysis, Japan, Latin America at 6:52 pm by Administrator
We’re in a position in the world economy that few in America would have imagined one year ago. And yet there are lots of examples from countries around the world that went through similar crises — we just never thought it would happen to us.
I’m shifting the focus of the my postings over the next few months from Asia to Latin America. I’ll be teaching a course on “Doing Business in Latin America” at Golden Gate University and I’ll work in examples from that. There are many examples of dealing with debt crises and cleaning up bad bank loans from the crises in the 1980’s that swept through the continent.
But before we switch gears, I’d like to take one final lesson from Japan. I talked previously about how Japan had gotten itself out of the “Lost Decade” of the 1990’s by taking the tough medicine of forcing the banks to clean up their loans and by making internal reforms in government organization and regulation. There are lingering costs however in terms of consumer spending. The New York Times wrote a great article last week about how Japan’s consumers have cut back spending as a response to stagnant real incomes. The Japanese were famous for saving up to the 1980’s but even that rate has fallen as the country rapidly ages.
The US has finished not so much a business cycle as a credit cycle. Private sector debt has risen steadily as a percent of GDP since 1952, accelerating rapidly during the Reagan years and since 1997, reaching over 350% of GDP. The market is correcting and credit will be tighter. This means less consumer spending, fewer leveraged buyouts, less M&A activity, lower inventory levels, etc. Companies will have to rely on organic growth as opposed to infusions of equity (especially from hedge funds) or debt. We face a difficult era ahead for the middle-class worker.
What is the way out? The US has traditionally grown around 2 1/2 to 3 1/2 percent in real terms. About half of this has been due to population growth while the other half has been due to increases in productivity. The emphasis is going to have to be on productivity and the key there is education, education and education.
Send me your thoughts.
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