Latin Economies in 2012: Toads and Tortillas

More eyes than ever before are focused on Latin America as countries in the West struggle with mountains of debt that the late Sir Edmund Hillary, the conqueror of Mount Everest, would never have attempted to climb. Most of these ills were brought about by mismanagement and greed and as a professional trustee I have reflected before on governments’ role in all this; my conclusion is that if the taxes of a nation, entrusted to governments, were assets of a conventional trust, with the citizens as its beneficiaries, then each country’s government would doubtless be in breach of its fiduciary duties to such a degree that criminal charges would ensue. As for greed, we have to look at the human condition, common to bureaucrats and the populace.

It was a craving for gold (one shared by many investors today) which led to Francisco Pizarro’s pillage of Perú 500 hundred years ago.  If one considers the fate of those under the flag of Spain at that time in Latin America it is not hard to appreciate why in his 18th century poem, ‘The Vanity of Human Wishes’, Doctor Samuel Johnson addressed, in 368 lines, the dangers that greed can bring. The poem opens with the lines “Let observation with extensive view,/ Survey mankind, from China to Perú” and certainly today mankind is surveying China more than it is Perú (although both countries are intertwined by substantial investments). Johnson’s contention that people ask for the wrong things, that folly is often sister to fortune, is still a philosophy shared today by many.

When the former UK prime minister, Margaret Thatcher, first saw São Paulo’s skyscrapers she is supposed to have said: “Why has nobody told me about this city before?” She never visited Panamá but the two members of the European parliament, who joined me as guests at a private dinner hosted by Panamá’s British ambassador, expressed similar wonderment at Panamá’s progress and the economic dynamo it has become.

Economic fortune is smiling on Latin America today, particularly in the case of Panamá, Perú and Brazil, but still, the two latter countries rely heavily on the sale of commodities; and if demand weakens appreciably (a possibility that cannot be ruled out) its effects will be considerable. As for Panamá, even though its services economy does not rely directly on commodities, the effects of a sustained downturn (with fears that Western economies are about to suffer part two of the Great Recession) will mean, at the very least, that there will be ripple effects (and not just in its canal).

It is no longer true, however, that wealthy nations comprise a “comparatively small corner of the world populated by Europeans”, as John Galbraith observed in 1958. Fifty years later the only thing in a corner are the Americans and the Europeans with China’s population (four times that of the United States of America) now representing one person for every five on the planet. Today not only the sun, but economies too, rise in the east. In 1968 Japan overtook West Germany to become the second largest capitalist economy and in 2010 non-capitalist China has moved Japan to third position.                        

Before, of course, the emergence of European imperialism and the arrival of what could be termed the American century there were no place settings at the bargaining table but now the West has to come to terms with the new powers and treat them accordingly. The largest economies in South America have earned their seats at the table and although it is not on the menu, some Western powers will have to eat humble pie. Canute, the 11^th century Danish king, in vain ordered back the tide and it is just as impossible for Western countries to prevent the oncoming economic tide sweeping in from the East. As Canute lamented: “Let all men know how empty and worthless is the power of kings”; sometimes that is true of nations too, although resignation doesn’t mean retreat, but denial can only lead to greater political and economic woes.

Three of South America’s leading economies, namely, Brazil, Chile and Perú have concentrated on strengthening Asian ties, understanding that while relations with the West remain very important, future collaboration with Asia is vital.

Chile, which established diplomatic ties with China in 1970, was the first Latin American country to sign a free trade bilateral agreement upon China’s entry into the World Trade Organisation, recognising China’s new economic status. Chilean president, Sebastián Piñera, during a three-day state visit to China (his first as President) signed three economic co-operation agreements.   He said that he was “full of passion” to see relations with Beijing continually improve and referred to pragmatic co-operation. It is pragmatism, not puffery, that needs to be applied in relationships with Latin America.

In many ways Brazil, the continent’s economic powerhouse, and the US share similarities: both countries are the size of continents in the western hemisphere with federal democracies and also powerful state governments; they were colonised by small European seafaring nations and gained independence within 50 years of each other. Both can claim melting-pot populations although, as I have written before, Brazil has probably achieved the most successful blend between the two; one astute commentator has observed that there are no hyphenated Brazilians. Conversely, whereas the US fights international wars Brazil does not; the South American country is left-wing and where the US passionately espouses the virtues of unrestrained capitalism, Brazilians favour its markets to have government involvement.

As we see the growing influence of China, not just in Africa but South America too, what some international observers might not appreciate is that Brazil is a larger investor in Perú, for example, than China. In fact, Brazil is forging alliances with an increasing number of regional countries, which is only part of a gradual integration taking place. It is achieving this in large part by employing soft power politics and heeding the views of Edmund Burke. The 18th-century Anglo-Irish politician, orator and political thinker, vehemently opposed the French Revolution but not America’s, and in dealing with the US colonies he urged the British government to be less inflexible and be more realistic, accepting, and adapting to, the inevitability of change. North and South Americans, but particularly their governments, should contemplate Burke’s argument that “All government, indeed every human benefit and enjoyment, every virtue, and every prudent act, is founded on compromise and barter”. Integration often requires compromise but it is very important for Latin America if the West’s stricken economies do eventually contribute to a slow-down in commodity prices; the pace of Chinese growth, we notice, has been slowing for the last two years.

It is sobering to realise that this recession has seen the volume of world trade fall about twice as fast as it did during the last century’s Great Depression. In the 15 months after the global economy peaked in June, 1929, commerce fell by some 10 per cent; in the same period after the April, 2008, turning point, global trade was down by 20 per cent, according to Barry Eichengreen at the University of California and Kevin O’Rourke at Trinity College in Dublin.  It was Hyman Minsky, a mid-20th century economist who taught at several universities in the US, who said that stable economies always sow the seeds of their own destruction with investors, banks, consumers and companies assuming the future will be like the recent past and which, as he put it, “breeds a disregard of the possibility of failure”. So perhaps we should note the advice of the 18th century French moralist, Nicolas-Sébastien Roch de Chamfort (admired greatly by Nietzsche, Mill and Pushkin): “A man should swallow a toad every morning to be sure of not meeting with anything more revolting in the day ahead”.

If Brazil shares any common ground (besides profit) with China it is probably pragmatism which, like a dove-tail joint, fits perfectly together with soft power. I have quoted Deng Xiaoping, the former Chinese politician, statesman, theorist and diplomat before but surely it is propitious to do so again: “Keep a cool head and maintain a low profile. Never take the lead – but aim to do something big”. The little chain-smoking man from Guang'an County in Sichuan province has rightly been described as the maker of modern China and his steady approach at home and abroad has been instrumental in the country’s transformation; importantly (Hugo Chávez in Venezuela take note) he removed the cult of leadership after Chairman Mao’s Cultural Revolution, although he stopped short of introducing Western democracy.

In the wake of the Great Recession it is true to say that, in economic terms, most of us will be looking at things differently in 2012: for many perhaps this might be considered the time of the Great Reflection (as opposed to Recession) but in any event it is a good moment to pause and take stock (if not, perhaps, to buy any). It is doubtful, however, when I survey mankind from China to Perú that the human condition can change, whether you eat toads or tortillas for breakfast.

Derek Sambrook
Derek Sambrook is a member of the Society of Trust and Estate Practitioners in the United Kingdom and obtained the Trustee Diploma of the Institute of Bankers in South Africa in 1973, becoming a Fellow of the institute in 1996. He emigrated in 1977 from Rhodesia (now Zimbabwe) where he was branch manager of a trust company and continued his profession in North America (Miami), Europe (including London and the Channel Islands), and the Caribbean (including the Cayman Islands). He has lived in Panama since 1996 where he is the Managing Director of Topaz Services, S.A. (www.trustservices.net), a Panamanian financial services company. He was Treasurer of the British Chamber of Commerce Panama for several years. Mr Sambrook‘s regulatory experience began in the corporate division of the Rhodesian (now Zimbabwe) Ministry of Justice (1965-1970) and subsequently he was appointed by the British government (1989-1992) as the first Bank, Trust Company and Insurance Regulator in the Turks & Caicos Islands, British West Indies; he established a regulatory body and drafted trust and insurance laws, banking and other regulations including licensing guidelines. As a direct result of his innovative captive insurance law, the Turks & Caicos Islands at the end of his contract had more than 5,000 producer-owned reinsurance companies and was the leading domicile in the world for this service. During his tenure he was also an affiliated member of the Latin American and Caribbean Banking Commission and Chairman of the government’s Offshore Financial Services Committee. He was a columnist for a leading United Kingdom offshore financial journal for over 15 years. His newsletter, Offshore Pilot Quarterly, has been published since 1997. In 2021 he celebrated 50 years in the trustee profession.