Russia, Syria, ISIS, and North Korea are capturing the news today, but simmering political and economic unrest in Venezuela and Latin America is potentially a threat to the United States.
The security and economic standing of Central and South American nations are critical to the defense and economic growth of the United States. President Trump’s “America First” foreign policy impacts longstanding formal and informal relationships with many of our southern neighbors.
The most headline grabbing initiative of course is the border wall the administration intends to build along the boundary with Mexico to mitigate the steady stream of illegal immigrants. The Department of Homeland Security estimated nearly 1 million illegal immigrants crossed the Mexican border in 2016, adding to the nearly 11 million currently in the United States. The prospect of more comprehensive border security (including a wall) projects fewer illegal immigrants, lessening state and local tax burdens to cover the education, welfare, and health care expenses of undocumented workers and their families. Importantly for Mexico, President Trump has abandoned his initial position to repeal the North American Free Trade Agreement (NAFTA) and pledged to renegotiate the terms so that they are more favorable to American workers. Amid softening of the U.S. administration’s stance on trade with Mexico (and Canada), the Mexican economy has seen growth of nearly 3% GDP during this latest quarter. We can anticipate the administration’s border security posture and its NAFTA negotiations will drive much of the Mexican economic and security outlook for the foreseeable future.
Further south, the Venezuelan socialist experiment is imploding, causing violence, mass exodus to Colombia, Brazil and Panama, and an economic and political spiral that threatens the entire region. Former President Hugo Chavez in 1998 nationalized many of the private assets, such as oil and mining companies, to redistribute wealth and create a socialist state. With the severe drop in oil prices, Venezuela finds itself the owner of assets that cannot pay for themselves, much less the services it has promised its citizens. Worse, because of Chavez mandated price controls, Venezuelan farmers and manufacturers saw no upside in producing basic food products and manufactured goods. Therefore, Venezeula must use what little foreign exchange it has to import food to feed its citizens. This is the classic socialist/Latin American dependency story with predictable results. Venezuela’s GDP has contracted by nearly 19% in 2016 and inflation is predicted to be between 700-2000% going forward. With numbers like those, we can expect chaos to reign in Venezuela. Naturally not a safe investment until President Nicolas Maduro (or a more competent replacement) can attempt to implement market reforms, Venezuela also poses a security threat to the region. The exodus of refugees, mostly into Colombia, Brazil, and Panama, could potentially destabilize those governments and their decelerating economies. Similar to how the Syrian civil war has displaced millions of refugees into Western Europe, the Venezuelan crisis could have a similar, but smaller, impact on the teetering economies of Colombia and Panama. As the chaos continues, we must recognize the significance of the Panama Canal and the logistics and services sector that revolve around that strategic asset. The Venezuelan crisis poses the largest regional security threat to U.S. vital interests, the free passage of trade through shipping lanes. The U.S. Administration should keep a watchful eye on the refugee migration as the situation develops. Just as ISIS has expanded into Afghanistan and other regions where instability reigns, we can expect ISIS to exploit the Venezuelan crisis to potentially disrupt the Panama Canal and move with refugees up the Central American landscape to the border with the United States.
Brazil and Argentina have traditionally been the main drivers of the Latin American economic outlook, especially in relation to the United States. Brazil is emerging from a recession that mirrors what the United States endured from 2008-2013, yet is still seeing flat to marginally increasing GDP growth. Meanwhile, Argentina’s reforms seem to be gaining traction as they claw their way out of recession.
Watch for U.S. policy toward border security with Mexico (and therefore the rest of Latin America), the administration’s positioning on NAFTA, and the U.S. response to the long developing crisis in Venezuela. We have some major strategic interests involved (illegal immigration, drug flow, and the Panama Canal) and while these issues may not receive the same attention as U.S. involvement in Southwest Asia and Afghanistan, they are every bit as critical.