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Yearender: Latin America, at the crossroads of risk, opportunity

Xinhua, December 18, 2016 Adjust font size:

The year 2016 seemed to comfort the remaining power of left-wing economic policies across broad swathes of Latin America.

Yet a series of political reversals and economic crises have left many of the region's pillars struggling to find a new narrative. In some, years of leftist policies led to swift reversals.

In Brazil, President Michel Temer has begun the swift dismantling of the economic legacy of former Brazilian Presidents Luiz Inacio Lula da Silva and Dilma Rousseff.

Financial and pension reforms happened swiftly after Temer took over in August. Congress is debating a bill to set the retirement age at 65, and austerity measures are beginning to take effect. The most controversial issue has been his plan to cap the federal government spending for 20 years, only allowed to rise at the rate of inflation.

While this has been seen as a breath of fresh air to investors long wary of Brazilian protectionism, Temer's economic measures have not been convinced at home. His poll numbers in December slid to just 10 percent, although this has also been coupled with his links to the ongoing Petrobras corruption investigation.

In Argentina, President Mauricio Macri has also declared that the country is open for business again. Blaming his predecessor Cristina Fernandez de Kirchner for years of depressed economy, Macri has been on a world tour, visiting 15 countries throughout the year since his swearing-in, to restore Argentina's economic reputation.

Shortly after taking office, he targeted 20 billion U.S. dollars in foreign investment for 2016, an ambitious target which has been set deliberately high by a government aware that any investment would be a victory.

A sovereign bond sale of 16.5 billion U.S. dollars in April ends up nearly 70 billion in offers, exceeding the debt fourfold and showing that the market is upbeat about Argentina's future.

Even the countries who remained loyal to their leftist principles have struggled. Venezuela has suffered tumbling oil prices and runaway inflation amounting to 784 percent.

With talks between the opposition and the government mired in mistrust, Venezuela looks set to be the worst-performing economy worldwide for the second year with a probable double-digit GDP contraction.

Cuba, Venezuela's ally, also had a disappointing year. A thaw with the United States in 2015 and a visit by U.S. President Barack Obama in March 2016 raised expectations for change. However, the Republican-held U.S. Congress has refused to lift the embargo. Besides, financial services remain stagnant, a severe drought led to water restrictions, oil supplies were slashed, and foreign investment growth was slower than expected despite a rich portfolio of opportunities.

The country's historic leader Fidel Castro passed away at the age of 90, leaving the island with more uncertainties ahead though he had retired from his political position a decade ago. This uncertainty is on the rise by the threat of Washington turning back the clock.

Tourism, hopefully, will be the catalyst to steer change. With around 4 million tourists expected to visit the island this year, regular flights have been restored from the United States, cruise ships are lining up, and hotel rooms are multiplying.

Donald Trump's winning of the U.S. presidency has cast the most brutal and immediate impact on Mexico. The peso collapsed right after the results were released in November, going as low as 21.45 against the U.S.dollar. It has since stabilized at 20.3 but the barrier of 20 pesos to each U.S. dollar, long thought to be a nightmare scenario, now looks normal.

The future of Mexican-U.S. economic ties is hard to predict. Optimists believe that, with the two economies being so intertwined, any punitive actions by Trump would hurt both sides.

Mexico has raised interest rates several times in a year to halt the economic slide. President Enrique Pena Nieto is open to revising, not scrapping, the North American Free Trade Agreement (NAFTA). Mexico has also entered into free trade agreements with 45 countries.

However, challenges remain. Trade relations along the Rio Grande River, which serves as the U.S.-Mexico border, is vital as over 80 percent of Mexican exports head across the Rio Grande and millions of jobs rely on it. Despite talks of a border wall and punitive tariffs on companies shipping jobs to Mexico, there is hope Trump may keep away from this hostile stance.

Elsewhere in Latin America, some economic engines seem to show promise. Peruvian economy, arguably the best of the continent, has continued to grow rapidly under President Pedro Pablo Kuczynski.

A sensible centrist leader, favoring easing regulation while guaranteeing social justice and equality, Kuczynski has presided over robust growth, seeing the economy grow by 4.4 percent in the third quarter.

Holding the APEC Summit in November in Lima gave Peru another chance to shine. China, a long-term investor in the country, showed its keen interest in growing closer with Latin America, with Chinese President Xi Jinping visiting Peru, Ecuador and Chile.

At the APEC meeting in Peru, Xi put forward a series of key initiatives, injecting impetus to cooperation in the Asia-Pacific and development of the global economy.

The Chinese president highlighted economic globalization as an irresistible trend, calling for the promotion of trade and investment, and opposition to all forms of protectionism.

In late November, as a follow-up, the Chinese government delivered the second policy paper on Latin America and the Caribbean, eight years after its first one in 2008.

The policy paper was clear that the development of China is not possible without the development of other developing countries, including countries in Latin America and the Caribbean.

This sense of political unity has economic projects there to back up. The Trans-Oceanic Railway, set to unite the continent's coasts, has gone from ambitious to plausible. The Chinese private sector, led by the Chinese company BYD, is moving in to play a major role in the expansion of electric buses and solar panels in Brazil.

However, more is yet to be done. With the commodity boom seemingly done and dusted, Latin American economies are in urgent need of diversifying their exports. But moving from exporting copper and soybeans to technology and services is not easy.

As Latin America reels from a year of uncertainty, China can provide a safe port in a storm. Endi