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A Critical Moment for Latin America

8:30 AM, Sep 28, 2012 • By JAIME DAREMBLUM
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The last major peace talks between Bogotá and the FARC began in 1999 and ended disastrously in 2002, with the guerrillas ramping up their violent attacks. If the current talks fail, Colombia could encounter a fresh wave of bloodshed. But if they succeed, the nation would receive a massive economic boost. In an interview last week with Bloomberg News, Colombian finance minister Mauricio Cárdenas predicted that a successful peace deal with the FARC could enable his country to grow at an annual pace of 6-7 percent “for decades.” Even without such a deal, Cárdenas said, Colombia could still achieve a long-term growth rate of 4.5-5 percent. After all, the FARC has been greatly weakened since 2002, and its ongoing activities have not prevented Colombia from enjoying an economic boom. (There is a good reason why investors view the South American nation as a potential “tiger economy.”)

In Mexico, President Felipe Calderón is set to leave office in December, and he will be replaced by Enrique Peña Nieto, who represents the same party that ruled Mexico autocratically for 71 years. Many Mexicans are nervous that the Institutional Revolutionary Party (PRI) hasn’t really changed its political character since losing power in 2000. They will be looking for Peña Nieto to affirm, unequivocally, the PRI’s commitment to democracy.

As I wrote in this space before the July 1 presidential election, the PRI of Peña Nieto is not the same PRI that ruled Mexico for most of the 20th century. It is “truly different,” in the words of former U.S. ambassador to Mexico James R. Jones. Yet many PRI dinosaurs are nostalgic for the old system, in which a “perfect dictatorship” made corrupt deals with drug cartels. We will soon find out whether Peña Nieto, 46, is serious about continuing President Calderón’s security policies in hopes of reducing drug-related violence. We will also find out whether he is serious about reforming Mexican labor markets and opening up the state oil monopoly. Such reforms would improve Mexican competitiveness and help close the GDP gap with Brazil, a country that has been celebrated for its economic rise but is now dealing with a sharp slowdown. (Last month, President Dilma Rousseff introduced a $66 billion stimulus package.)

Finally, there is Argentina, where President Cristina Kirchner seems determined to wreck Latin America’s third-largest economy. It is experiencing 25 percent inflation and enormous capital flight, and the government’s strict currency controls are causing major economic distortions. Argentine GDP shrank by 0.8 percent in the second quarter of 2012 (compared with the first quarter), and the International Monetary Fund has threatened to censure the country unless Kirchner stops doctoring official economic data.

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