In May 2009 I participated in a workshop entitled “American Foreign Policy: Regional Perspectives” sponsored by the William B. Ruger Chair of National Security Economics at the Naval War College in Newport, Rhode Island. With a new administration in office, the meeting aimed to formulate and recommend new directions for American policy for each of the major regions of the world.
The monograph from the meeting was released today and is available online at:
http://www.usnwc.edu/academics/courses/nsdm/documents/Ruger09_WEB.pdfAlong with my own views on U.S.-Latin America relations, you can find writings from Peter Hakim, President of the Inter-American Dialogue, and Amb. Paul D. Taylor, Senior Strategic Researcher at the Naval War College. Assuming Arturo Valenzuela will in fact be confirmed now that Congress is back in session, he will be soon facing the many issues we discussed – public security, sustainable energy, economic advancement, and hemispheric migration among others.
The Mexican Congress approved a long-overdue energy reform on Tuesday October 28 following 6 months of debates, referendums in 8 Mexican states and Mexico City, and numerous public demonstrations from both sides. While some newspapers tout the government got 80% of the reforms it asked for, Calderon started with an already limited proposal, rejecting any foreign investment in production, which would have required substantial changes to the 1938 constitutional amendment governing Mexican oil. The shared risk/shared reward bargain present around the world, and with other state-owned oil companies such as PETROBRAS in Brazil and PDVSA in Venezuela, was never on the table in Mexico. Even so, the “20 percent” that the President conceded to the PRI and PRD in Congress was an important part. The final bill , and soon law, prohibits private companies from operating refineries and transporting oil within Mexico. It allows Pemex, Mexico’s state-owned oil company, to contract with other companies for some (but not all) types of desperately needed investment in exploration and production, leaving out in particular difficult deep water explorations. The approved reform also sets up disincentives to contracting with Pemex at a time when capital and credit are limited. It mandates that contracted companies must be paid in cash and forbids paying them based on the amount of oil found, produced, or sold by Pemex, although it does offer bonuses for early completion of projects and transferring technology to the Mexican oil company. While the reform does give Pemex more financial autonomy and greater flexibility – allowing it to keep more of its profits so that it can use them for investment in technology and exploration – the company’s employees currently lack many of the necessary skills to realize these new opportunities. So, in the end, production will continue to decline.
Despite these limitations, the reform process was positive for Mexico’s solidifying democracy at work. Once a political third rail, politicians, interest groups, and society at large discussed and approved an oil reform, through successful negotiation and compromise between the Executive and Legislature, and within Congress. The PRI and the PRD played an important role in toning down the reform, which was then passed by an overwhelming majority in both the Senate and the Chamber of Representatives. The reforms exposed the deepening division within the PRD. While many of their colleagues voted for the reform, other PRD representatives attempted to block debate , forcing the Senate vote to take place at an alternate venue and the Chamber vote to take place at a makeshift podium, away from the flag-waving and horn-blowing occurring in the usual space. Yet these anti-democratic tactics were unable to sway the workings of Congress — a good sign. Democracy worked.
Given the importance of oil revenues for the government — it funds nearly 40% of all public spending — further debates and reforms will happen again — perhaps sooner than later. What this round of reform shows is The that the “sacred cow”? of oil is no longer that. This itself is good for Mexico.
After taking a 3 plus month maternity hiatus, I am back and will be posting regularly again.
To kick things off, here is a link to a new Independent Task Force report from the Council on Foreign Relations, titled U.S.-Latin America Relations: A New Direction for a New Reality. The Council brought together 19 individuals of various interest and expertise under the chairmanship of Charlene Barshefsky and General James T. Hill. As director of the project, I can attest to the long hours of intense and at times spirited discussion among its members.
The group decided that U.S. policy should focus on four critical areas: poverty and inequality, public security, migration, and energy integration. The main recommendations are the following:
Poverty and Inequality:
- U.S. should expand targeted assistance for poverty alleviation and institution building by fully funding the Millennium Challenge Account and developing new initiatives to reach the poor regions of the larger middle income countries. These programs should reflect the priorities of Latin American governments and also involve restructuring and integrating the programs of various U.S. government bureaucracies and multilateral institutions.
- Alongside aid, the United States should approve pending free trade agreements with Colombia and Panama and extend trade preferences to Bolivia and Ecuador to encourage productive relations with these complex countries.
Public Security:
- The United States should assist Latin American countries in strengthening their law enforcement and judicial systems. Only through strong institutions can criminal networks and drug traffickers be controlled in the long term. The United States should also focus more on the demand side of the drug equation, working closely with other large drug consuming nations, specifically those in the European Union.
Migration:
- Push through a comprehensive reform in 2009. This must deal with border security, employer responsibility, some sort of regularization of the 12 million unauthorized workers here today, and a flexible guest worker program to deal with future labor demands.
Energy Security:
- The United States should provide FDI incentives to help build energy infrastructure i the region. It should also sponsor regional and subregional working groups to forward best practices.
Finally, the task force touches briefly on 4 bilateral relations. It recommends deepening U.S. relations with Brazil to promote global trade negotiations and manage energy demands; strengthening cooperation with Mexico to stop narcotics trafficking, increase U.S. investment in energy production, and reform immigration policies; using multilateral institutions to address foreign and domestic policies of Venezuela; and opening informal and formal channels of communication with Cuba, with the eventual goal of lifting the embargo.
As the primaries proceed, little attention had been paid to Latin America. Given the de facto integration of the Hemisphere through migration, trade, and other links, it is high time that U.S. foreign policy focus more attention on Latin America.
In this interview I lay out four main areas the next administration should focus on to reframe and redirect policy toward the region. These include: energy, public security, migration, and poverty and inequality. It is a tall order, but any progress on these fronts would be welcome after the recent years of neglect.
Energy is not just an important domestic policy issue in Brazil, but has also been a key element of its foreign policy. While Brazil has an admirable mix of energy sources – including hydroelectric, natural gas, oil, and ethanol – it has struggled and continues to struggle with potential energy shortages. These limits led to energy rationing in 2001, hitting the Cardoso government hard in the polls and providing Lula with an effective campaign issue in the 2002 Presidential race.
During the 1990s these energy needs spurred an active foreign policy promoting energy integration with South America. In particular, Petrobras invested heavily in Bolivia to increase its supply of natural gas. It also reached out to Argentina and others, increasing both commercial and political ties through energy interdependence.
Yet now in 2007, energy-based integration is dying. Despite rhetoric to the contrary by South American leaders, the time for deepening energy ties has passed. Argentina has shut out Chile in these last few months from its gas sources, encouraging the Chilean government to look abroad. Peru has decided that it will sell any surplus gas to Mexico and the United States, rather than its local neighbors. And for Brazil, recent events in Bolivia have pushed both Petrobras and the government away from diversifying regionally. Instead, the country has turned to developing its own natural gas supplies, as well as bringing in liquid natural gas – LNG – from sources other than Latin America.
This changing energy plan will likely significantly influence Brazil’s foreign policy. Brazil’s stated South-South diplomacy focus is faltering, due in no small part to the limitations in the area of energy security. These domestic economic realities are pushing the government to engage with a broader set of nations – including the United States and European nations. While currently led by Lula himself (and his March agreement with President Bush on ethanol), these economic needs will pressure the famously independent Foreign Ministry as well in the months to come. This trend bodes well for Brazil, which should be able to diversify its energy sources and provide for the future. It bodes poorly for Bolivia, as its largest energy investor and client turns outward. And it means that the studies for a regional gas pipeline spanning South America will remain just that, limiting yet again integration in the region.
