Bloomberg Línea — Mexico’s President Andrés Manuel López Obrador (AMLO) launched an ‘anti-inflation alliance’ among Latin American countries on April 5, to which the leaders of 11 countries have signed up, but despite including the region’s five major economies (Brazil, Mexico, Argentina, Colombia and Chile), the plan has generated very low or zero expectations of aiding in the deceleration of price hikes.
In fact, in countries such as Brazil and Mexico, the gradual deceleration of inflation is under way, regardless of this announcement, although there are also opposing poles: Argentina and Venezuela are two of the three states with the highest inflation in the world.
Bloomberg Línea spoke with experts from different countries in the region, and who agreed that López Obrador’s plan will not have any impact on the inflationary evolution of the countries.
However, there is some hope that he will work on tariff reductions that will benefit trade between countries and lower transaction costs.
AMLO announced the plan on Twitter on April 5:
The impact on inflation
“In the first instance it may help, but let’s remember that, in the end, persistent inflation is more a matter of monetary policy or even fiscal imbalances,” said Mexican economist Marco Oviedo, Latin America strategist at XP investment bank, the largest in Brazil.
However, Oviedo highlighted the fact that the plan is focused on reducing tariffs and facilitating trade, which, according to his perspective, “could be positive”. In this regard, he said: “Fewer obstacles to trade will always be welcome”.
For his part, Brazilian Leonardo Paz, a researcher at the Getulio Vargas Foundation’s Center for International Prospecting and Intelligence, said: “It is too early to decide whether it will have an impact, but I don’t think so”.
Paz acknowledged that it is necessary to wait for more information regarding the scope of the plan and which products will be impacted, although he warned that the plan seems to have a strong political component: “López Obrador is trying to have a stronger political leadership role in Latin America, in agreement with Lula, and not disputing with him”.
Regarding the latter, the Brazilian analyst pointed out that AMLO has taken the fight against inflation as a “flag” of economic cooperation, given that it is one of the most important problems of Latin American economies. But, he concluded: “I do not believe that an agreement will be reached that will have a strong impact on inflation in the countries. It is more an idea to launch their leadership and, perhaps, to increase cooperation between countries”.
Another important fact is that all the countries that participated in the first meeting called by López Obrador are led by social democratic, center-left or left-wing leaders.
On the other hand, Marcelo Elizondo, an Argentine expert in international trade and head of consulting firm DNI, wondered what an international alliance can do against inflation if, in his opinion, “inflation has different components, but the first one is always endogenous”.
In this regard, he added: “inflation in the countries has to do with the monetary expansions that occurred during the pandemic”.
Elizondo said that an international or regional policy against inflation could be thought of if there were an economy that was intertwined or supported by strong linking structures, such as, for example, the European Union or the USMCA.
“It smells more like political rhetoric,” he summarized.
He said that the proposal has a political rather than technical purpose and stressed: “We could move forward in other types of alliances: it is much more important to open markets, generate a single market, and then create institutions, and only after that begin to address issues of economic variables of the countries. But starting at the end is not the right thing to do”.
Which countries are involved in AMLO’s anti-inflation plan
- Argentina (year-on-year inflation: 102%)
- Belize (6.5%)
- Bolivia (2.53%)
- Brazil (4.65%)
- Chile (11.1%)
- Colombia (13.34%)
- Cuba (44.5%, according to unreliable official data)
- Honduras (9.05%)
- Mexico (6.85%)
- Saint Vincent and the Grenadines (average 5.7% inflation during 2022, according to the IMF)
- Venezuela (537.7%)
What does AMLO say?
The Mexican president’s latest pronouncement on the plan is that the countries have agreed to meet again, in Mexico.
He said the plan aims to “improve our economic and commercial exchange to address the inflationary problem. The purpose is that we can facilitate trade, imports and exports of food and other goods, so that consumers in other countries can benefit. The more food supply there is, the better, there is more competition, and prices are naturally controlled”.