Latin America is America's third largest trade partner. Its continuous economic growth is critical not only to the region itself, but also to essential segments of the U.S. economy. Yet, American leadership and business communities have not invested adequate resources to support this important strategic connection. The toll may be high on all fronts.
Looking back at the 2012 elections, both presidential candidates practically ignored Latin America in the third debate, dealing with foreign policy. Most commentators were quite surprised that America's neighbor and economic partner did not play a greater role to the candidates' future plans. It can be explained by both the nature of the debate and the declining role of the United States in the region.
First, if one listened to the U.S. presidential debates in the last couple of weeks they might think that there are two worlds; the world of national economic policies and the world of global affairs and foreign policy. These two realities can be perceived as detached from each other only on theory. In reality, they are extremely interconnected and intertwined. The rising role of Latino voters in the United States, for example, is also shaped by the nature of the relations between America and Latin American countries, and the future of immigration policy, including immigration from Latin America. As long as American leadership does not emphasize the impact of foreign policy towards Latin America on local policies, voters and policy makers alike will not absorb the importance of these strategic relations.
The artificial separation of national and international debates in today's globalized world should be reconsidered and perhaps changed in future election campaigns.
Second, more importantly, this approach reflects a real change in priorities on the ground. A finance minister of a leading Latin American country confirmed to me in a recent conversation that U.S. investors are becoming less interested in the region. It is probably a combination of limited resources and the 'new normal' with over-attention to Asia in general, and China in particular. The rest of the world, on the other hand, is not wasting time. Latin America enjoys a commodities boom and a rapid middle-class growth that provides foreign investors with tremendous opportunities.
Of particular visible presence is the Gulf States. The Latin-America-Arab summit was launched 2 years ago and recently took place in Peru. The focus of this summit is strengthening diplomatic ties between the Arab word and Latin America and facilitating further trade and investments between the two regions. The U.S. created a vacuum in Latin America, and the Arab World is quick to fill in.
One area where Gulf States and Latin America will and should collaborate is long-term investment in Latin American infrastructure. Lagging infrastructure is one of the continent's biggest challenges. According to recent reports by the U.N., the region requires additional investment of $170 billion per year to 2020 to achieve adequate levels. The upcoming World Cup event and the Olympic Games in Brazil exemplify the challenge of bridging the gap of infrastructure in a short time frame. Short horizon, political and policy uncertainty, unstable rules, and price fluctuation - these are just some of the factors that widen this infrastructure gap. At the same time, many Arab nations have created successful sovereign funds that are now focused on infrastructure investments globally. Recent losses in liquid assets encouraged many governments and funds to invest in 'real assets', such as infrastructure projects in rapidly developing economies.
Thus, sovereign funds' status as long-term investors along with a diversification model can present obvious synergies with Latin American's craving for better infrastructure. The initial reports that came from the last Latin-Arab summit in Peru were extremely positive, talking about a significant upgrade in trade and investment relations.
Is this trend reversible? The use of the U.S. dollar for trade and investment, the close ties between Latin America and U.S.' capital markets and the strategic importance of Latin America's port and logistical centers for U.S. firms may overshadow any serious attempts to dramatically change the geo-strategic forces in the region. Nevertheless, recent statistics seem to suggest the trend is here to stay. After all, some time diplomatic summits do reflect the reality we live in.