The Rise Of The Pacific Alliance

The rise of the Pacific Alliance may signal the emergence of a two-track economic growth dynamic in Latin America.

For those unfamiliar with it, the somewhat grandiosely named Pacific Alliance is a trade block consisting of Chile, Colombia, Costa Rica, Mexico, and Peru, which was formally launched in June 2012. These countries have generally been the standard bearers of macroeconomic stability and orthodox policy in Latin America over the past decade. By contrast, Mercosur (the region’s other main trade grouping) states such as Argentina and Venezuela, and the nations of Bolivia and Ecuador, have been characterised by populist and statist economic policies, making them more protectionist and less investor-friendly.

Although forces of economic divergence in Latin America have been masked by the commodity boom of the 2000s, we believe that as China’s economy slows sharply over the next 10 years, its reduced demand for commodities will not necessarily affect Latin America evenly. Indeed, the Pacific Alliance states, which are more open to free trade and investment, are better positioned to capitalise on new opportunities, not just by trading with one another, but through increased trade with the Association of Southeast Asian Nations (ASEAN).

Also noteworthy is that Chile, Mexico, and Peru are prospective members of the Trans-Pacific Partnership (TPP), which is emerging as a new trade block linking Latin America and Asia. TPP negotiating participants Australia, Canada, and Japan are meanwhile associate members of the Pacific Alliance. Thus, there are powerful forces at work to promote trade between these dynamic emerging regions.

Further analysis of the Pacific Alliance and the Trans-Pacific Partnership is available to subscribers at Business Monitor Online.