In 2006, Latin America’s political situation generally was stable, the economy continued to grow and foreign relations developed in diverse ways
　　
　　Political situation
　　
　　This year, more than 10 Latin American countries have held presidential or parliamentary elections, or both. Thus, the media have dubbed 2006 the year of elections for the region.
　　Except for Mexico, most elections were held in a peaceful environment. After the elections, most defeated candidates faced reality and accepted the choice of the electorate.
　　Left-wing leaders did not accomplish as much as people expected. In late 2005, some observers and analysts forecast that the left-wing forces of Latin America would continue to show their strength and dominate the political arena. However, so far, their achievements have not been as outstanding as predicted earlier, though left-wing politicians successfully defeated their rivals in Brazil, Nicaragua and some other countries.
　　Since the 1990s, many Latin American countries have carried out political reforms, with the focus on election laws. Such reforms have been successful in most countries. All political parties participate in elections within a democratic framework, and electorates are able to express their political choice by voting.
　　Stressing the importance of maintaining consistency in government policies, most newly elected leaders said they would continue the policies of the previous governments so as to maintain the confidence of domestic and foreign investors.
　　But perhaps Bolivia is an exception. On May 1, President Evo Morales announced that the country’s oil and natural gas industry would be nationalized. The measures stirred a panic among international investors in the energy-related fields, and created tension in Bolivia’s relations with Brazil, Argentina and other countries.
　　The political conflicts in some “problem countries” took a positive turn this year. In 2005, political turbulence occurred in some Latin American countries, such as Haiti, Peru, Ecuador, Nicaragua and Bolivia, because of domestic political, economic and social problems. But in 2006, through elections and political dialogue, these contradictions have been alleviated to a greater or lesser extent.
　　
　　Economic situation
　　
　　DEFENDING THEIR INTERESTS: Peruvians demonstrated in the streets of Lima, the capital of the country, on June 29 to protest the free trade agreement the government signed with the United States
　　The Latin American economy has grown five percent in 2006, marking a four-year high-growth period. The previous such high economic growth period was from 1991 to 1994.
　　The economic growth is closely related to the favorable external environment. For example, the rapid development of the world economy makes Latin America able to continue to expand its exports, which will in turn help the countries further improve their trade positions. The UN Economic Commission for Latin America holds that Latin America ranks second in the world next to China in terms of its export growth rate.
　　It should also be pointed out that in recent years the “China element” has contributed to the economic growth of Latin America. As China has imported a good number of primary products with high prices from the international market, it has benefited Latin American countries that depend on exporting raw materials.
　　Currently, the Latin American economy is in a rising period with the following characteristics:
　　First, the positive effects of external elements are increasingly prominent. Although the recent economic rise of Latin America can be attributed to the vitality that economic reforms have brought about since the 1990s and some other internal elements, research shows that the positive effects of the improved performance of the world economy, especially the U.S. economy, on the Latin American economy cannot be ignored. It means to a certain degree that if the world economy can maintain its good growth, the prospects for the Latin American economy will be further brightened.
　　Of course, to better utilize the favorable external conditions, Latin American countries need to increase the efficiency of investment, improve their infrastructure and strengthen government administration.
　　SIGNS OF PROTEST: Representatives of Mexico’s opposition party take over the Congress chamber to prevent President Vicente Fox from delivering his annual speech before Congress on September 1
　　Second, a current account surplus accompanies the high economic growth rate. On one hand, Latin America’s export trade is increasing, and on the other hand, many Latin American countries, especially Central American countries, obtain a large amount of remittances from emigrants. The current account surplus in 2006 accounts for 1.5 percent of the region’s gross domestic product (GDP). The coexistence of a high economic growth rate and current account surplus is rare in the history of Latin America, and it also provides an advantage for the Latin American economy to cope with external problems. The occurrence of the current account surplus is closely related to the improved trade environment.
　　Third, the increase in national income has increased domestic demand. In recent years, the growth rate of national income of Latin American countries has exceeded the growth rate of GDP. In 2004, the growth rates of national income and GDP were 7.1 percent and 5.9 percent, respectively, and those in 2005 were 5.9 percent and 4.5 percent, respectively. As a result, the domestic demand of Latin American countries in 2004 and 2005 increased by 4.2 percent and 5.3 percent, respectively. The fact that the growth rate of domestic demand lags behind that of national income shows to some extent that the national savings rate in Latin American countries is increasing.
　　But the investment rate (21.6 percent in 2005) has not recovered to the level prior to the East Asian financial crisis in 1997, and is unable to provide enough jobs. In most Latin American countries, creating enough job opportunities is one of the requisites to resolving social problems.
　　The negative effects of inadequate investment have been very obvious for a long time. For instance, Latin America boasts the second largest reserves of oil and natural gas in the world. But due to less investment in the energy sectors, some Latin American oil producers could not increase their output by a large margin against the background that world energy prices have skyrocketed in recent years.
　　The only exception may be Brazil. The country’s national oil company has greatly increased its output in 2006, a result of increased investment in the previous years, which makes the country basically able to meet its own energy needs.
　　Fourth, the debts of Latin American countries decreased greatly. Compared with 10 years before, the proportion of debt to export income has been reduced by half, and the proportion of short-term debt to foreign exchange reserves has been reduced by one third.
　　Fifth, the fiscal status of Latin American countries has been improving. In recent years, a relatively high economic growth rate has driven production activity, which has resulted in a revenue increase. On the other hand, fiscal expenditures have not increased very much.
　　Sixth, in the eyes of many international investors, the risks of investment in Latin America are declining. That forecast is based on the following factors: the Latin American economy has entered a new growth period, and the economic situation appears optimistic for the foreseeable future; the balance of payments is improving; the macroeconomic situation is getting better and the margin of exchange rate fluctuation is narrowing.
　　
　　Relations with other countries
　　
　　COMMON CONCERN: The presidents of Argentina, Bolivia, Brazil and Venezuela gather in Argentina to discuss issues of natural gas production, pipeline building and trans-border supply
　　In 2006, relations between Latin American countries and China continued to develop in a positive direction. Many Chinese leaders visited Latin America and several Latin American heads of state visited China. People-to-people contact has been increasing.
　　It is estimated that the bilateral trade volume between Latin American countries and China is very likely to reach or exceed $60 billion this year (it was $50 billion in 2005).
　　But, behind this, there are also some negative elements. Some Latin American countries have taken anti-dumping measures on the pretext that products made in China have hit their domestic markets. Despite this, more and more Latin Americans believe that China’s rapid economic development provides good opportunities for Latin America, rather than being a threat.
　　From April 12-15, China and the United States held consultations on Latin American affairs, the first of its kind. The two countries exchanged views and opinions on their relations with Latin American countries, their policy toward Latin American countries, the situation in Latin America and Sino-U.S. cooperation in the region. It was part of the Sino-U.S. strategic dialogue started in 2005. It shows in a certain sense that the development of China-Latin America relations has drawn Washington’s attention.
　　PROMISE OF A BRIGHTER FUTURE: Brazilian President Luiz Inacio Lula da Silva addresses an assembly in downtown Sao Paulo on October 29 after he was reelected
　　Relations between Latin American countries and the United States showed signs of confrontation. Being concerned that Latin American countries will continue to “turn left,” the United States tried its best to prevent Daniel Ortega from being elected Nicaragua’s president. When Cuban President Fidel Castro was hospitalized, the United States said it hoped for a transition toward democracy in Cuba, instead of a succession by Raul Castro, Fidel’s brother. At the same time, relations between the White House and Venezuelan President Hugo Chavez and Bolivian President Morales have not been good.
　　The United States’ construction of a barrier along its border with Mexico has aroused intense opposition from Mexico. Mexican President Vicente Fox said on October 26 that the plan brings shame on the United States and is a nearsighted decision.
　　But some Latin American countries still maintain good bilateral relations with the United States. On February 27, the United States and Colombia announced that the two countries reached an agreement on free trade after two years of negotiations. Also, on April 12, the United States and Peru signed the free trade agreement that was reached between the two countries in December last year.
　　In any case, Latin America is the backyard of the United States. As Latin America has to depend on the United States economically, a move to eliminate U.S. influence from the region will not appear. In other words, relations between Latin American countries and the United States have been in a state of coexistence between cooperation and confrontation, and that will persist in the future. But cooperation will still dominate.
　　
　　Relations within the region
　　
　　In recent years, relations between some Latin American countries have not been very good. For example, on April 22, Venezuela said it would formally withdraw from the Andean Community of Nations. International media termed the event the gravest crisis since the trade bloc was created in 1969, and at the same time it has had a huge negative effect on the Latin American integration process.
　　On April 28, Chavez attacked Alan Garcia, Peru’s former president who was running in the second round of presidential elections, in barbed words in one of his speeches to the nation, which has aggravated tensions between Venezuela and Peru. Peru announced the next day that it would recall its ambassador to Venezuela.
　　After Morales announced that Bolivia would seize control of the oil and natural gas industry on May 1, relations with Brazil and Argentina, two countries that have been severely affected by the decision, became complicated. Brazilian President Luiz Inacio Lula da Silva said the Brazilian Government would not take any retaliatory measures against Bolivia, but he also stressed that Bolivia should not have sovereignty over Brazil, and maintaining Bolivia’s rights should not damage Brazil’s interests.
　　

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