Editorials

More integration to fight the economic slowdown

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By Juan E. Notaro

FONPLATA Executive President

As the Bulgarian economist, Kristalina Georgieva took office as new IMF Managing Director, replacing the French Christine Lagarde, bad news regarding the world economy was announced: the economy of the whole world is slowing down.

How serious is the situation? According to Georgieva, about 90% of the countries shall face slowdown to a greater or lesser extent. The new managing director of the world finances refers three main causes for the slowdown: trade disputes (headed by China-Washington), geopolitics and the Brexit.

In Latin America, to this three issues, we should add the end of the “commodities boom”, which contributed so much to the region’s growth in the first 15 years of this century, and, even more, to the progress towards satisfying social demands in most of the countries.

All this is taking place at the end of a year in which many countries of the region are facing big social and political challenges, which may also determine their future role in intra-regional relations.

In short, we are facing a difficult situation as well as a big challenge: to get back to economic growth, development and inclusion of the most vulnerable segments of the population in an economic slowdown context and within a complex political landscape.

I have looked for answers and possible courses of action in the “Trade and Integration Monitor 2019: Rough Patch: Latin America and the Caribbean amid the Global Trade Slowdown”, issued by the Inter-American Development Bank (IDB).

The IDB research team focuses on Latin-American trade exchange and integration schemes. The diagnosis is clear: in the second half of 2018 and first half of 2019 there has been a remarkable trade contraction, a trend that is expected to continue in the second half of 2019.

In the specific case of FONPLATA member countries (Argentina, Bolivia, Brazil, Paraguay and Uruguay), the document refers to intra-regional trade “collapse”, “slump” and “restrictions”, especially in raw materials and manufactures.

The picture is more encouraging in relation to trade-in-services, especially technology, knowledge, and business services, where trade flows are positive for almost all countries.

Even though it is not yet as significant in volume as the manufacturing sector, the figures show a positive trend in the efforts of many countries to diversify their economy and revenue streams.

To these efforts has contributed, among other things, the existence of productive sectors operating under international standards and with enough flexibility to adjust to unpredictable circumstances, such as the recent swine fever outbreak in China. In this specific situation, Argentina, Brazil and Uruguay were able to react quickly, positioning themselves as the main beef exporters to the Asian giant.

Although primary commodities prices are expected to remain stable or to show a downward trend, the World Economic Forum projections show that most of FONPLATA member countries will continue to have a GDP growth in 2020.

However, the IDB report highlights the importance of activating “new areas” for the countries’ GDP growth. In that sense, it recommends boosting “productive integration”, as well as creating “regional value chains”, especially for manufactures and processes based on natural resources.

In other words, in a global economic slowdown, according to the IDB, the priorities are to minimize external risks, strengthen integration schemes, and enhance the follow up of the private sector.

Thus, it is essential to continue investing in integration’s infrastructure in order to reduce logistics costs, field in which FONPLATA has been focusing on for the past 45 years.

In the face of a slowing down economy, the answer must be to accelerate integration. This will be a win-win process which, as soon as the situation improves, will help us to faster join the road to growth and development.

12/10/2019