Latin American Business

Latin America asks for seat at US Federal Reserve table

by Bob Sheth on October 9, 2014

Latin America asks for seat at US Federal Reserve table

Latin America asks for seat at US Federal Reserve table

In a sign of the times, finance ministers from Latin America have asked the US government to be consulted on future changes in US monetary policy. This development is far removed from the situation just a decade ago when it was Latin America which depended upon the US and literally followed without question. However, the ongoing influence of the Latin American region, the creation of BRICS and the fact the US need as many allies as possible would appear to have changed the situation dramatically.

There is no doubt that the US is still a major economic powerhouse around the world, despite losing its number one slot to China just recently, but perhaps it is time for the US authorities to communicate and work together with their Latin American counterparts?

US interest rates set to rise

US base rate, together with those around the world, have been rock bottom since the 2008 mortgage crisis. The array of cheap finance available has not only supported the US economy during these difficult times but it has also created a flood of money towards some of the world’s developing regions such as Latin America. On the flipside, as US base rates do eventually rise, with 2015 pencilled in as the year for change, this could dramatically reverse the flood of capital back towards the US and other developed economies.

Quote from Gringos.com: “There have been instances of Ebola in the US and there are concerns that Europe could be at risk in the short term. Do you think Ebola is going to be a problem for Latin America? Are governments in Latin America doing enough to combat the potential threat of Ebola?”

It is obvious that any significant change in fund flows around the world would impact the worldwide economy and could weaken the situation in Latin America in particular. While the US would initially benefit from the switch in fund flows it is worth noting that the US still relies heavily upon Latin America as a trading partner with many US operations having Latin American subsidiaries.

Will the US government consult Latin America?

In reality it is difficult to see the US government bending down to their Latin American counterparts and asking for permission to change their monetary policy. This would show a weakness on behalf of the US government although there is every chance that closer trade links, economic negotiations and other communications would accompany a change in monetary policy. It is a tricky balancing act for the US government to “maintain control” of its own economy while being careful not to decimate the economies of Latin America.

So far there has been no response from the US authorities with regards to this request by Latin American finance ministers and in reality any direct communication is likely to be behind closed doors. However, it is interesting to see that Latin America is starting to believe in itself again which bodes well for the long-term future of what has been a difficult area of the world.

Conclusion

It is difficult to see how the US government could justify asking “permission” from Latin American counterparts with regards to changes in US monetary policy. However, the bond between these two areas of the world plays a vital role in the US economy going forward and it would be foolish to dismiss the region. Perhaps the growing influence of Europe and the Far East within Latin America will focus the minds of US politicians looking to maintain a long-term relationship with their counterparts.

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