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irst proposed by former Peruvian president Alan Garcia, and established in 2011 to include Mexico and the “Andean Three” — Colombia, Peru and Chile — the Pacific Alliance had seemed unlikely to gather traction. With a commitment to free trade at its core, the alliance aimed to be an “effective co-operation space that promotes innovative initiatives” on the competitiveness of regional SMEs, integration of securities markets, tourism, cultural promotion, and the environment. Many onlookers were sceptical as Latin America had experienced several failed custom unions and trade alliances. The sceptics have turned out, thus far, to be wrong. Accounting for a combined population of 225 million and a collective economy that is the eighth largest in the world, the alliance has shown consistent progress. Alliance members combined attracted 38 percent of the region’s direct foreign investment (DFI) in 2018 — which has since risen to 45 percent. Since its establishment, it has seen the development of the Latin American Integrated Market — a common platform for stock exchange markets that allows for the trade of equities and titles from any four stock exchanges in each member country, using local currency. Work is also under way to improve trade facilitation, patent simplification, e-commerce and digitalisation. Business visas are no longer required by membercountry citizens. Its individual economies blend well together, combining the Andean Three commodity dependency with Mexico’s huge manufacturing base. With core industries of mining, agriculture, manufacturing, and tourism, combined with emerging industries such as financial services, the region also provides diverse local demand and commercial opportunity. This facilitates supply and demand within its own frontiers, supports the region’s strengths, and nurtures new businesses. The Pacific Alliance has largely avoided the intraorganisational political issues that have hindered trade agreements such as Mercosur (the trade bloc consisting of Brazil, Argentina, Paraguay and Uruguay). Will it be possible to sustain this success in coming years? Evidence suggests it will. Member states are projecting rises in GDP, but challenges remain. Protests in Chile and Colombia, successive corruption allegations against Peruvian presidents and influential Mexican narco-cartels have not yet caused significant damage to investor confidence, but may yet do so. Chile is gradually replacing fossil fuels with solar energy, while Peru is investing in pipelines to pump water into its coastal desert regions, transforming arid land into fertile agricultural areas. These efforts will be accompanied by ambitious energy projects, major road networks, and railway infrastructure. The alliance has taken full advantage of global trends, not least a boom in alternative export crops.
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The Pacific Alliance has stated in its 2030 Vision the aim of increasing relations with its 59 observer states. It held a round of technical groups in June 2019 in Santiago, Chile. Australia is expressing interest in joining the alliance, and Canada, Costa Rica, New Zealand, Paraguay and Honduras are also keen. The alliance has also deepened its partnership with the EU through a joint declaration signed in New York. Greater global expansion is made easier and more likely by the Pacific Alliance’s adoption of a more regulatory structure, allowing for easier navigation by foreign investors. It also seems to be receptive to growing trends — they have given much attention to the Asia-Pacific region, with a primary focus on China’s continued rise. Paired with member countries’ prime real estate position along the Pacific rim, facing out to East Asia, the alliance looks primed to capitalise on Asian markets. Successes to date can be summarised as having put member countries in the top 60 countries for ease of doing business. There has been increased trade with other countries, including effective regional integration in Latin America, and a response to diversification. Its weaknesses can be seen in non-uniform improvement and progress in member countries. Further to this, Pacific Alliance member countries are not matching the faster growing GDPs in the region such as Panama and Dominican Republic. Potential future successes (and failures) could come from closer ties with Mercosur, a convergence in regional policy aims and integration. The two blocs could account for 81 percent of Latin America’s GDP, and more than 90 percent of FDI. This would increase intraregional exports, which in 2018 accounted for just 20 percent of total exports. In comparison, the figures for the EU and East Asia are 60 and 50 percent respectively. The two blocs, however, have differing core structures which may prove difficult to reconcile into a successful trade partnership. Much of the Pacific Alliance’s successes stem from its compatibility. A Pacific Alliance-Mercosur link would allow for greater access to Mexico’s corn and car production sectors — an attractive proposition for car markets in Brazil and Argentina. Mexico would also be the prime beneficiary of further regional integration as local companies would become more competitive in global markets. This, in turn, would further synchronise standards across Latin America’s largest economies, bringing stronger supply- and value-chains. The future for the Pacific Alliance is bright — especially if it maintains its commitment to free trade and regional integration. Investors have recognised the reasonable projections of growth for trade, investment, and GDP, as well as the clear plans for stronger international relations and objectives in its 2030 Vision. i CFI.co | Capital Finance International