Thinking long on China's economic impact

Useful stats on the regional economic projections over the next 20-40 years.

Mexico will join the Big 7 by 2030 and Indonesia by 2050. By then, the United States will be the only advanced country to rank among the world’s seven largest economies. At the same time, China will become the center of world trade, representing by far the largest trading partner for most countries. Its share of world trade will reach 24 percent by 2050, up from about 10 percent today.

The rise of emerging economies other than China will create major opportunities for Latin American countries. Today, about 40 percent of Latin America’s exports go to other developing countries, including China; this figure will surge as developing countries’ share of world exports will more than double from 30 percent in 2006 to 69 percent in 2050. 

Beyond the China angle, a few other things stand out. First, Mexico and Brazil will be increasingly important markets for the hemisphere and the US will remain one of the top trading partners, even looking 40 or 50 years into the future.

Second, watch out for Indonesia. Most regional analysts are watching China. Some are watching India and expect that to be one of the next big things in the coming decade. If Indonesia is going to be one of the world's top seven economies in forty years, then they are going to be one of the top economies for trade with Latin America and the Caribbean. I don't think many Latin American countries are thinking through their Indonesia relations, but perhaps they should start.

Cash and crime

Slate tackles a topic I was considering writing on: would eliminating physical money change or reduce crime?

While saying that electronic funds would simplify tracking and auditing certain crimes for government authorities, the article offers this anecdote from the region:

Latin America already offers a glimpse of one such substitute mechanism in action. As its economy grows ever more fluid (most South and Central Americans bank on their phones, using mobile apps that offer accounting and brokerage services), people have turned to “stored value cards,” which hold a fixed amount of money and can be bought or sold like any other good. Since they don’t draw from a bank account—funds and data are maintained by the card issuers and accessed by scanning a magnetic stripe—these cards are much harder to track. In a cashless world, SVCs might join precious metals and gems as currencies favored for illegal transactions.

There are still too many people in Latin America lacking access to basic identity documents much less bank accounts to make a cashless society possible. But the presence of bank accounts and credit cards has reduced the amount of hard currency. 

There is probably a middle ground on this question that Latin America is approaching. For example, Mexico has banned large cash purchases to avoid drug money being used to buy cars, yachts and property. It's far from the cashless society and every cup of coffee being tracked electronically, but it's a reasonable policy given today's technology and the access the average citizen has to it.

Economic warfare vs food speculators

Recent food price spikes were largely driven by speculators. Another spike is expected in 2013 and there are fears that a food price bubble could impact the entire global supply chain.

Could a Latin American country use deception and economic warfare to fight back? Regulating the speculation market, one of the leading and more sensible recommendations, is playing defense. It will take significant resources while speculators work to get around regulations.

All it takes is a few vindictive leaders with resources and motivation to finally break the speculator's economic games for that war to begin. One leader of a major economy or a few key countries from smaller economies could coordinate to distribute misleading information and try to force speculators into making mistakes. A country attempting to manipulate the market prices to throw off speculators and harm their businesses would be criticized by most major economies, but it's likely they would have reached a point where they don't care.

This sort of deception and economic warfare would be difficult, but not impossible. More troubling, like real wars, the ongoing dispute if done correctly would likely cause world markets to shake violently, leading to a number of second and third order consequences that would likely hurt everyone.

It's best if we don't get to that sort of economic war moment that impacts the food everyone needs. However, the food price speculation debate is usually put in terms of regulate or not regulate. If a group of countries force that debate into terms of regulate or economic warfare, it would draw attention to the issue and create a more likely environment for regulation.

Like most things on this blog, I'm not recommending any country go down this route, just speculating on an out of the box scenario.

Could a country's land be bought?

Investors including China and Saudi Arabia have made Latin America part of the global land grab. Plots of land have been purchased or leased directly and indirectly for agriculture and other development. In response, Brazil, Argentina and others have passed laws to restrict foreign ownership of land.

What if a country made the opposite policy, making its land easier to buy for foreigners? And what if there was a rich and willing investor? This creates a hypothetical scenario in which well over 50% of a country's land is purchased or leased by foreign investors. At an extreme, a foreign power or corporation could buy an entire state or province and gain almost full control over it.

Does the rest of the region get a say in this? This is a question that goes right to the heart of the sovereignty debate in Latin America. On one hand, a country should have a right to sell, lease or give its own land to whomever it wishes. On the other hand, the idea that a country could literally sell its own sovereign territory and leave its neighbors dealing with a foreign power controlling a border area impacts regional security.

Adopting someone else's currency

El Salvador and Ecuador chose to dollarize their economies about ten years ago (Panama has long used US currency). Going with the dollar gave the two countries a level of currency stability and trust that they did not have previously, but took away monetary policy control from the country and tied them to whatever the US is doing. Essentially, the move got rid of some problems and added some new ones. Debates still continue over whether it was a good move and whether the countries should consider going back to their own currencies.

In the next 10-20 years, could another Latin American or Caribbean country adopt a foreign currency? The Dollar is always possible (in fact, it's used as a de facto alternate currency in several countries), but so would be the Chinese Renminbi, the Brazilian Real, the Mexican Peso or, if they get their act back together, the Euro.

This is a different debate from the question of whether countries should create a unified currency. This is about a country completely surrendering monetary control and giving up managing its own currency supply.

What sort of political leadership would it take? What sort of crisis would drive Guatemala, Peru, Paraguay or Haiti to decide to sack their own currency and jump on with another country? Would the US, Brazil and Europe compete to be the new currency, would they push against it, or would they just ignore it as it happened?