**LATIN AMERICA IN 2020**

**"Two Steps Forward, One and a Half Back"**

**The views expressed in this and other papers associated with the NIC
2020 project**

**are those of individual participants. They are posted for discussion
purposes**

**only and do not represent the views of the US Government.**

**LATIN AMERICA IN 2020**

**"Two Steps Forward, One and a Half Back"**

Latin America has seen many changes, often for the better, in the past
twenty years. Democratic governments, admittedly not always on firm
foundations, have largely replaced the dictatorships. Many of the civil
wars have been resolved. There has been some improvement in living
standards and economic performance. The issue is whether the region can
build on this progress or whether the inherent structural weaknesses
will doom Latin America to another couple of decades of relative
underachievement. The subtitle of this paper suggests the scenario we
expect to unfold.

In the next seventeen years, Latin America will see some improvements,
but not enough for it to keep up with the rest of the developing world,
let alone to address its own serious needs. Although the region will not
remain static over the next two decades, Latin America's inherent
dynamism will not be enough to offset its many problems, particularly
those related to governance. Figuratively speaking, while other parts of
the developing world might be expected to move only one step back for
every two steps forward, over the next two decades, Latin America is
more likely to move back one and a half steps for every two it takes
forward.

Clearly, it is impossible to generalize about an entire region without
running the risk of masking nuances. Cuba, for example, could be in a
much better place in 2020 than it is today. The same may be true for
Mexico. Haiti and some of the Caribbean islands could be even worse off.
In some likely scenarios, Brazil could be better off; in others, worse.
Over all, however, we expect the changes to be gradual, and much slower
than they should be, given the resources and opportunities at the
disposal of Latin American governments.

We begin the examination of Latin America in 2020 with the seven key
drivers originally identified for the exercise. Two of these are the
crucial determinants of progress \-\-- **national and international
governance** and **the role of the USA**.

The other drivers provide the context for developments over the next 17
years \-\-- **demographics**, **natural resources and the environment**,
**science and technology**, **the** **global economy and
globalization,** and **the future of conflict**.

We then turn to the most likely scenario for the region. This
examination is divided into two sections. The first looks at the main
trends for the region as a whole \-\-- **regional integration and
democracy**, **the FTAA, trade and the economy**, and **security
cooperation**. The second part of our scenario for 2020 considers
possible futures and important factors for **specific countries and
regions** in the Western Hemisphere.

Finally, we consider some **wildcard events** that could affect the
region in the coming years and that would change how the region might
look in 2020.

**KEY DRIVERS AND THEIR EFFECT ON LATIN AMERICA TO 2020**

**National and International Governance**

Inconsistency in meeting the challenges of governance has characterized
Latin America over the past two decades, and it will likely remain so
for the next two. A pattern of government ineffectiveness continues to
keep Latin America from taking full advantage of trends in the global
economy and realizing its potential. If this pattern continues, the next
17 years are likely to present more obstacles than opportunities. The
failure to address poverty and the gap between rich and poor, for
example, will continue to thwart development. A few areas where
shortcomings in governance persist are: official corruption, rule of
law, effective taxation, judicial independence, human rights, police
effectiveness, security, delivery of services, business development, and
complex regulatory environments.

These shortcomings have affected the ability of governments to undertake
market-oriented reforms, and this is likely to continue for the coming
decades. In turn, this will influence the ability of the region to
implement plans for regional integration or trade agreements. Whether
the model of integration being pursued is a comprehensive FTAA, a more
piecemeal approach such as Mercosur, or a series of "hub and spoke"
bilateral trade deals between the nations of the hemisphere and the USA,
the future of the region depends not only on which model, or mixture of
models, is chosen, but, more importantly, on how effectively any
integration strategy can be implemented. The likely future is one,
therefore, in which such integration takes effect slowly, gradually
wearing away some of the most obstructive aspects of governance.
Agreements will, in most cases, call for changes that governments will
find difficult to implement (e.g. labour and property law,
administration of justice, elimination of corruption), but that they
will enact piecemeal.

Not everything related to the governance of the past two decades can be
characterized in gloomy terms. GDP per capita growth, admittedly, was
minimal (at about 11% total growth for the 1980-1999 period, and not
much more than 1% \[i.e. 0.2% per year\] for the 2000-2004 period).
Amidst the stops and starts over the past couple of decades, however,
there have been improvements in various human development indicators;
standards of health care are better, longevity has increased, literacy
is improved, labour codes are in place and infant mortality rates are
down. Even if governments are unable to capitalize on these
improvements, by 2020, the region will surely be better off than it is
in 2003, but not necessarily very much.

The most positive aspect of Latin America's future is the likelihood
that, well before 2020, the WTO, and possibly some spawn of the FTAA,
will have opened world markets and the US market, particularly to
agricultural goods, an area that will have a major effect on the
economies of some of the key countries of the hemisphere. As far as
other aspects of global or even regional governance, such as the United
Nations, the OAS, CARICOM, MERCOSUR or other new bodies that could
impose rules or standards of behaviour on the region, there is little
prospect for much change. (Haiti could be a protectorate of the United
Nations by then, delegated to the OAS. If the smaller economies of the
Caribbean are not able to compete, they too could be under some form of
tutelage, but, in general, the next 17 years are unlikely to change the
way governments of the region relate to each other or to larger
multilateral organizations.)

**The Role of the USA\-\-- Damned if you do; damned if you don't**

The basic attitudes of Latin American governments towards the USA are
unlikely to change, although the specific countries most eager to
cooperate with or confront American ambitions will probably be different
by 2020. Today, with some exceptions (Cuba, Venezuela, and Brazil, for
example), Latin American governments tend to be ambivalent towards the
USA, alternately resenting its influence and seeking its cooperation,
or, at least, its markets. They tend to resent any hint of infringement
on their sovereignty. The challenge for the USA has been, and will
likely remain, engaging the region without appearing to dominate it.
Without US leadership, there is often limited capacity within the region
itself to move an agenda forward. On the other hand, if the USA appears
to be pushing an agenda, it is likely to come under suspicion.

The approach taken by Washington towards the region will, nevertheless,
continue to be a key driver in the development of the hemisphere. Early
intervention in situations that could have wide implications for the
region, be they financial, political, or social, especially if that
intervention is welcomed by the country or countries in question, will
bring about one result. Benign neglect will bring about another result.
The difference that deliberate US engagement can make in Latin America
is obvious. Colombia's recent progress in its security and policy
environment is one example, albeit an expensive one. The changes in
Central America's trade and regulatory environment in anticipation of
free trade agreements with the USA is another. To some extent, then,
developing a scenario for Latin America in 2020 would require developing
a global scenario to assess likely US interests.

Our assessment is that there will always be demands on the USA from
places where trade and physical security are in crisis elsewhere in the
world that distract American attention away from Latin America. By 2020,
we expect that Latin America, by and large, will have muddled through,
with the occasional crisis, but nothing that seriously threatens US
interests. This will allow other countries such as China, India, Japan,
and the European Union a greater field of opportunity in the region.
Besides being a key market, China is likely to become a particularly
significant investor in Latin America. So long as Washington does not
perceive this as a threat to its interests, the region will continue to
be treated as a place for US business to engage but as a place that does
not command the sustained, serious attention of the most senior policy
makers. The greater demographic weight of the US Hispanic community
will, however, ensure that the hemisphere has not fallen off the
government radar.

**SECONDARY DRIVERS AND THEIR EFFECT ON LATIN AMERICA TO 2020**

The remaining drivers are significant, but secondary. They will shape
the context in which the main trends and key drivers will play out in
the coming two decades. For the most part, they represent forces over
which Latin American governments have little or no control, or are
unlikely to exercise the control they do have.

**Demographics**

The expected rise of the aged population in Latin America, in both
relative and absolute terms, will increase demand for government
services at a time when most countries will lack the institutional or
political resources effectively to integrate an expected youth bulge
into the tax-paying workforce. Rapid urbanization will also mean
increased demands from unskilled labour in the cities and more
disruption of traditional rural ways of life, ultimately leading to a
greater burden on the state. To paraphrase a 2000 UN report on future
demographic trends, then, Latin America is at risk of growing old before
it grows up. Countries with aging populations and falling birth rates
will go grey before economic development provides resources necessary
for care of the elderly.

**Natural Resources and the Environment**

The US Department of Energy forecasts that worldwide demand for oil will
remain high through 2025, while prices will remain volatile. Brazil,
Colombia, Argentina, Ecuador, and Mexico have the capacity to increase
production and contribute meaningfully to non-OPEC supplies. Venezuela
has the greatest Latin American potential, and, current turbulence
notwithstanding, it will have increased production by 2020. Increased
production and consumption of natural gas will be, by far, more
dramatic. Consumption in 2025 is expected to double 2001 levels. In
Latin America, the main beneficiaries of this trend by 2020 will be
Argentina, Bolivia, Venezuela and Trinidad and Tobago, the countries
with the greatest reserves. Liquefied natural gas will be more
prevalent, and the hemisphere will surely have expanded its facilities
beyond the only one currently in operation in Trinidad and Tobago. While
tapping energy resources will provide necessary capital to the countries
involved, governance issues will determine whether the country as a
whole benefits and whether economies will be able to diversify away from
dependence on one key commodity.

There is little scope for optimism about the fate of Latin America's
environment over the next 17 years. Even a growth of the middle classes,
which are often more sympathetic to environmental protection, would not
necessarily be sufficient to generate political will to prioritize
environmental issues. Rapid growth would increase water use, industrial
pollution and deforestation, and the demands of development would
quickly overcome arguments in favour of conservation. More sluggish
growth would reduce the priority of conservation as developing Latin
American countries may seek to attract investment through lower
environmental standards. There will be some localized "successes,"
brought about by a combination of native peoples' objections to
development and pressure from global NGOs, but these are unlikely to be
the norm. Environmental clauses in free trade agreements will also have
some small effect, but, unless the global community decides to commit
large sums of money for environmental causes in Latin America, the
situation is not likely to be improved markedly by local government
decision-making.

Finally, because of global warming, there will be an increase in natural
disasters and weather events, such as flooding and hurricanes. These
events will continue to have a serious and disproportionate effect on
Latin America's smaller and more fragile economies that are dependent on
tourism and/or single crops.

**Science and Technology**

Research and development have not been, and are unlikely to become
capable of altering Latin America's future significantly. Developments
in Brazil's much-vaunted pharmaceutical industry are more
policy-oriented than they are driven by innovation. New technologies
will present opportunities for niche markets but Latin America will
continue to be a net technology importer rather than a trailblazer.

**Global Economy and Globalization**

In light of limited capacities to take advantage of improvements in the
global economy and globalization, Latin America will likely continue to
lag behind global growth. Moreover, it will face continued and
protracted competition from other developing economies, especially Asia
and Eastern Europe, for foreign direct investment and export markets.
Although strong growth in Asia may create new opportunities for Latin
America in terms of sources of investment and new markets, by and large,
Latin America will generally remain weak because of investment risk
aversion, unsustainable debt loads, unemployment, and a labour force
that lacks the skills and education to compete.

By 2020, freer trade for agriculture will be a boon for Latin American
growth. It will also have increased the credibility of globalism as a
force for good that can and does deliver benefits to ordinary people as
well as corporations. The ability of governments in the hemisphere to
take advantage of the opportunities offered by freer trade in
agriculture and in other goods and services will limit growth, but
countries such as Brazil will surely find their position significantly
enhanced.

**The Future of Conflict**

The fragile economies of Latin America are more likely to be seriously
affected by the outbreak of interstate violence elsewhere in the world
than they are to suffer invasion from a neighbour. Open hostilities are
unlikely to break out between Latin Americans over the next twenty
years. There are, however, potential trouble spots where tensions may
arise. In no particular order, they are: the Falkland Islands; the
Colombia-Venezuela border; the Guyana-Venezuela border; the
Guatemala-Belize border; the Ecuadorian-Peruvian border; the
Haiti-Dominican border; and Brazil's Amazonian borders. It is more
likely that, in some countries, civil war or unrest could surface.
Countries least successful in repairing the governance deficit and
better distributing the wealth they generate will be exposed to the
dangers of populism, sometimes expressed in violent terms by
idealistically driven or indigenous groups.

**THE SCENARIO FOR LATIN AMERICA IN 2020**

**Introduction**

For Latin America, there are only two viable scenarios \-- one in which
drivers and trends evolved towards a net positive outcome and another in
which they evolved towards a net negative outcome.

The net positive scenario depends on successful and extensive regional
cooperation and integration, permitting increasing stability and
allowing Latin America to weather localized or temporary economic
shocks. This would include a healthier approach to governance issues,
strengthening democratic structures and broadening the participation of
the population in the economic life of the country. At the same time,
countries of the region would adopt a more open approach to regional
security, characterized by confidence-building and interstate
cooperation.

The net negative scenario foresees a diminution in the current impulse
towards regional cooperation and integration. Improvements in any one
country would be less likely to translate into improvements elsewhere,
and all countries would be largely on their own in weathering shocks in
the international system. Even under this scenario, it is unlikely that
democratic institutions would be swept away on a large scale, but
governance would be poor and the participation of the population in the
economic life of the country minimal. At the same time, and partly as a
result of the lack of regional cooperation, Latin American countries
would be disinclined to approach security issues on a collective basis.

While we see elements of both scenarios in individual countries over the
coming two decades, our general assessment is that the region will move
forward, but slowly. In other words, the progress of the past two
decades is a true harbinger of the progress we can expect until 2020.

We examine below where Latin America is likely to be in 2020 with
regards to regional integration, democracy, the economy, and security.
Finally, given that the region is made of up very different players, we
offer some thoughts on how individual countries might look in 2020.

**Regional Integration** **and Democracy**

In 2020, Latin America's real advances in regional cooperation will
likely have fallen short of the ambitious plans of comprehensive
political and economic integration envisioned for the hemisphere in the
1990s. A hemispheric FTAA may well be in place by 2020, but its
substance will be less significant than was envisaged in the 1990s
because key issues will have been dealt with on a global basis through
some form of WTO negotiations. The OAS will remain a regional General
Assembly, consensus-driven and lacking any effective Security Council.
Democracy will have grown more entrenched throughout the hemisphere, but
the inability to deal with the gap between rich and poor will mean that
populists and ideologues will still have followers, some of whom may be
successful for a time in reversing democratic progress in individual
countries. The danger of this happening is greater in the poorer
countries, but not necessarily those which have the greatest number of
poor. (The Andes, parts of Central America, possibly Paraguay, and Haiti
will still be vulnerable, whereas Brazil and Argentina will be more
likely to weather non-democratic populist revolt.)

**The Economy, the FTAA, Trade and Investment**

Much of Latin America will find it difficult fully to realize the
benefits of trade arrangements. As a result, Latin America as a whole
will continue to suffer from periodic localized economic and financial
crises and remain vulnerable to economic troubles elsewhere in the
world. Growth will typically be uneven and inconsistent. On the whole,
national economies throughout the region will not have kept pace with
other developing regions. The divide between the rich and the poor will
not have been closed, but levels of poverty will not be as extreme as
they are today.

Whatever the fate of the FTAA, it will not be the final word in
hemispheric trade integration. Within the framework of the WTO, many
Latin American states will be motivated to adopt common positions in
order to improve their leverage; common positions that could do much to
motivate deeper regional trade integration. The longer it takes to
complete an FTAA, the more likely it is that individual countries will
have struck deals with the USA, non-hemispheric trading partners, and
with each other. Thus, even if, by 2020, a comprehensive FTAA is in
place, it will have to take account of the privileges contained in the
separate trade agreements. Furthermore, with or without an FTAA, the use
of protectionism is unlikely to be entirely eliminated, particularly
among Latin American nations themselves. The use of protectionist
practices will be reduced, regulated, and disciplined, compared to
current levels. Sub-regional groups, like Mercosur, may retain some
political identity, but their utility as a trading bloc will be weakened
by whatever larger trading arrangements are in place in the hemisphere
in 2020.

By 2020, markets in Asia will likely be increasingly hungry for
agricultural products. Brazil will be the main beneficiary of this
development. Its balanced global trade has prepared it to seek growth
outside the hemisphere. Should Brazil continue to find better results
beyond the hemisphere, its push for regional Latin American integration
on its terms will probably diminish. It will, nevertheless, remain the
preeminent country in South America and, increasingly, the leader of the
continent in the global arena.

At the end of the second decade of this century, Central America and the
Caribbean will have grown closer to North America and Mexico. South of
Panama, on the other hand, most states will have special arrangements
with Brazil and Mercosur. Even these countries, however, will seek
strong ties to North America where markets and the standard of living
will retain their appeal.

Latin America will likely suffer a continuing shortage of investment,
despite the fact that investors in the USA, Europe, China and Canada
continue to show some interest. The element of risk is not likely to
have faded. By the same token, Latin Americans themselves are unlikely
to fill the void by chanelling their investments into domestic
instruments. Without improvements in governance that give Latin
Americans a greater sense of security, they will continue to invest
abroad.

**Security**

Protection of sovereignty will be the purview of the military, but most
other aspects of security will rest with civilian authorities.
Exceptions to this will arise under extreme circumstances when the
political level decides a situation has become to difficult for civilian
police to manage. Even in such situations, however, the primacy of the
civilian authority will remain clear. This is unlikely to have changed
by 2020 as the memory of military dictatorships, and military-inspired
coups, throughout the region will ensure a degree of suspicion on the
part of civilian governments. On the other hand, if there is no
recurrence of coups in the coming years, some civilian governments may
turn to the military to handle some aspects of security that exceed the
capacity of the police, such as international terrorism and transborder
crime. The military will remain a force of last resort in handling
domestic disturbances.

Global terrorism will remain a peripheral issue for most countries in
Latin America, but most will have adopted at least minimal practices in
light of US concerns. Building a region-wide security policy will remain
highly sensitive throughout Latin America, and little progress will have
been achieved. Most countries will prefer that security be dealt with
through a patchwork of bilateral arrangements amongst Latin American
countries themselves rather than a comprehensive agreement either among
themselves or with the North. There is potential for a greater degree of
cooperation amongst regional police forces. Some border problems will
persist but violence within states will remain a much greater problem.
Typically, such violence will manifest alongside criminal activities,
aggravated by governments' inability to address socio-economic
disparities. Localized turbulence will be inspired by populist and
indigenous groups dissatisfied with their share of the national wealth.

Militant indigenous movements will be major political factors in several
Latin American countries. They will work with other disaffected groups
whose concerns and objectives coincide or overlap with theirs--- labour,
coca farmers, environmental and anti-globalization activists, other
populists or ideologically-driven activists--- notably in opposition to
orthodox, market-oriented economic policies. They will attack
socio-economic inequities, oligarchic rule, widespread poverty,
marginalization of indigenous, peasant, and poor populations,
institutional corruption, and other governance deficiencies. These
activities will contribute to political tensions, turmoil, and
occasional crises, with negative consequences for economic growth and
development, leading, ultimately, to a deterioration in, or at least
slowing improvement of, the conditions that inspired the unrest.

Transnational crime, linked to domestic criminal activities will
continue to challenge the capacity of states to cope. The levels of
corruption currently in play are unlikely to have been reduced to any
significant extent. So long as narcotrafficking remains a basic part of
the livelihood of large sections of the population and alternate methods
of making a living are absent, there will be threats to the stability of
states in the region. The fact that key states, such as Brazil, will
continue to provide both a conduit and a market for drugs, ensures that,
without a massive coordinated effort by governments in the region, which
we do not foresee in the next two decades, narcotrafficking will
maintain a hold on significant parts of the hemisphere. This implies, as
well, the ancillary criminal activity including arms and human
trafficking.

**THE SCENARIO FOR SPECIFIC COUNTRIES AND REGIONS**

***Mexico***

By 2020, Mexico will be the USA's principal trading partner. The lack of
real progress in the rest of Latin America will have confirmed, for
Mexico, the wisdom of its choice to tie its fortunes to the North.
Regardless, Mexico will continue to play a role in Central America. In
international trade, Mexico will jealously protect the market access it
has gained through its numerous free trade agreements, although it will
see its privileged access diluted as other countries catch up and as
WTO-type agreements enter into force. As a result of the experience of
electing a non-PRI president early in the century, the permanence of
Mexico's single party system will have been shattered. By 2020,
important structural reforms and improvements will have occurred,
brought about in part at least by the need to harmonize its policies
with the USA. Despite improvements in regulating the border, Mexico will
remain a principal point of entry for drugs and illegal migrants moving
into USA.

***Cuba***

By 2020 Cuba will have changed significantly. With the departure of
Castro, there will be a transition to much greater openness and some
democratic freedoms. This openness will continue to be managed by strong
institutions for a time, at least, but the turmoil of transition will
make the country a more normal part of the Caribbean, which, among other
things, means that it will be more likely to contribute its share of
activities of organized crime and smuggling. The speed and smoothness of
the transition will be determined by the emergence of new political
leadership, the timing of the lifting of the US embargo, the level of
economic growth and development and the role of the exile community. The
return of Cuban ex-patriots, with demands for compensation and
restoration of property, will cause disruption, but this is unlikely to
last more than a decade following their return. With the end of the
embargo, the economic situation on the island will brighten
considerably, but this will not be an automatic remedy to the severe
structural obstacles to integration of the Cuban economy into world
markets. Ultimately, how Cuba will look in 2020 will depend more than
anything else on when Castro departs. If sooner, Cuba will have had time
to adjust to a more normal country; if later, the transition will still
be on-going by 2020.

***The Caribbean Islands***

The small island economies of the Caribbean have shown little sign of
being able to adapt to the global environment. They are unlikely to make
much progress by 2020. Many will have even closer trade and regulatory
ties to the USA. The great problem will be whether the smaller island
nations, with few or no resources, will fall further behind than most.
Other serious issues facing this region will include organized crime,
increasingly destructive and frequent weather events, and rising sea
levels. One anomaly in the region could well be that Haiti, having
failed completely and beyond redemption, became a protectorate of the
United Nations or the Organization of American States.

***Central America***

In Central America, most governments will continue to struggle with
structural reform programs. Corruption will remain a major impediment to
progress. Drug smuggling, gang activity, migrant trafficking, and the
left-over arms from past wars will contribute to high levels of criminal
violence. These problems will offset the economic benefits that could
have otherwise derive from closer ties to Mexico, the USA and one
another through CAFTA. If civil wars or border disputes re-emerge
anywhere in Central America, the prospects for the region are more
negative, but we doubt that shooting will break out any time between now
and 2020.

***The Andes***

Narcotraffickers and the anti-government groups that protect them will
be present throughout the Andes. Assuming that governments will not be
capable of mounting an appropriate military or security response on
their own, narcotrafficking operations will likely be found in Colombia,
Bolivia, Peru, Ecuador, and Venezuela. The pursuit of such organizations
will not lead to interstate border conflicts, but interstate cooperation
in dealing with the problem will remain incomplete. Human rights issues
will continue to be a concern. The political legitimacy of currently
existing insurgent and paramilitary groups may fade over time; however,
in the absence of social improvements, such organizations will continue
to find recruits among the poor, the indigenous, and the idealists. The
lengthy period of US engagement in Colombia will likely lead to some
improvements in governance and a trickle of investments could also
return, particularly in the energy sector. Venezuela will bear the scars
of Chavismo for many years, and, although the alleviation of poverty and
inequity will dominate the political agenda, Chavez-style populism will
prove the principal obstacle to lasting improvements. A sharp change in
US engagement in the Andes, whether a move towards withdrawal or a
stepped up military presence, would alter the outcome of this scenario.
Due to weak governance, Andean nations would lack the capacity to make
up for the loss of US support on their own, and challenges to local
authority would inevitably grow worse.

***Brazil***

Brazil will likely have failed to deliver on its promised leadership in
South America, due as much to the skepticism of its neighbours as to its
frequently overwhelming emphasis on its own interests. It will,
nevertheless, continue to be the dominant voice on the continent and a
key market for its Mercosur partners. Brazil will still not have won a
permanent seat on the Security Council, but it will continue to consider
itself a global player. Although Brazil's economic improvements are not
likely to be spectacular, the size of its economy, along with its lively
democracy, will continue to have a stabilizing effect on the entire
region. Trade arrangements with Europe, the USA, and large developing
economies, mainly China and India, will help to keep its exports growing
steadily enough to offset its overall lack of economic dynamism. Even
after twenty years, efforts to pass vital reforms to Brazilian
institutions will still be underway. Though the situation is bound to
improve somewhat, the so-called "Brazil cost," itself a governance
issue, will continue to thwart efforts to modernize the economy
thoroughly. Brazil's complex and burdensome taxation system, fiscal wars
between its states, and the limits of its internal transportation
infrastructure, will persist. Taking advantage of Asia's hunger and
improved ties with Europe, Brazil will endeavour to offset its
structural limitations through its robust agribusiness sector. Brazil's
sizeable debt and vulnerability to inflation will also remain matters of
concern.

***Southern Cone***

Economic success in the Southern Cone will continue to be inconsistent
and crisis prone. Argentina will have largely recovered from its
economic woes of two decades past, having reduced its debt through
negotiation and regained some of its economic vitality. A return to the
standards of living enjoyed before the collapse, however, will remain
elusive. Finding a balance between its aspirations for political and
economic greatness and what is sustainable will be a constant theme in
Argentina domestic politics. Chile, on the other hand, defying regional
trends, particularly related to governance, is set to continue its
economic ascent. Although it will be able to "punch above its weight" on
Latin American issues, it will not depend solely on its neighbours for
its economic well-being and international stature. This will help it to
weather whatever turbulence its neighbours experience.

**WILDCARDS**

The following wildcards could affect the way events unfold in Latin
America. In all cases, the effect of such developments felt in 2020 will
depend on when the they happened, in the (unlikely) event that they did
happen.

**1. An Islamic Extremist Terrorist Event:** The effects of a terrorist
event in the Western Hemisphere carried out by al-Qaeda or a similar
group depend on two factors: the target and the place of origin. A
*terrorist attack in the USA* would strengthen US political will in the
War on Terror which we believe will still be going on in 2020. It would
strengthen efforts to broaden definitions of security as well as the
willingness to apply force to counter security threats. A *terror attack
in the USA launched from Latin America* would have serious ramifications
for the region's relations with the US especially regarding immigration
and security issues. Depending on the target and the severity, a
*terrorist attack in Latin America* against American interests could
have a similar effect. Terrorist attacks by Islamic fundamentalist
extremists against Latin American interests in Latin America, on the
other hand, would have a much greater effect on the security
arrangements between states in the region.

**2. International Conflict Distracts the USA:** If the USA is involved
directly in a foreign war (e.g. Iran, North Korea, or Syria) or leads
the effort to pick up the pieces (e.g. Pakistan vs. India), it will be
distracted away from Latin America. The impact of such wars on Latin
America, then, would be twofold: first, the US would be distracted, and,
second, such conflicts would affect the global economy and, hence, Latin
America.

**3. A Sudden Collapse of the Cuban Civil Authority:** Should Castro's
decline or departure trigger a breakdown in civil order in Cuba,
internal disruptions could include massive out-migrations and increased
criminal activity. In an extreme case, it could even trigger direct US
intervention. The arrival of huge numbers of Cuban ex-pats in Cuba,
seizing property and making demands of the now diminished Cuban state,
could also complicate the situation.

**4. A Brazilian Credit Event:** If Brazil were to crumple under the
weight of its debt, the entire region would suffer from spill-over
effects. The investment climate all over Latin America could sour, and
it would take years to restore confidence. Mexico and Venezuela, where
oil revenues bolster GDPs, would be relatively shielded from the direct
impact of a collapse, but a Brazilian meltdown would have global effects
on emerging market debt and other investment patterns throughout the
region and around the world. Mercosur would languish as a result of
Brazil's difficulties and, although Chile is better prepared to weather
storms than anyone else in Latin America, its investments in the region
would be vulnerable. In Brazil, economic collapse would undermine reform
efforts as citizens would blame the government for poor economic
management. New forms of populism and nationalism would capture the mood
of dissent, prompting a descent into renewed economic nationalism and an
increasingly uncooperative brand of federalism. Internationally,
Brazil's political leadership in Latin America and the developing world
would be seriously compromised.

**5. A New Drug:** If a new drug were to displace cocaine in world
markets, it would have an overall negative effect on the Andean economy,
increasing unemployment, and provoking a loss of hidden revenues. More
significantly, however, it would have an overall positive impact on
diminishing the severity of the conflict throughout the Andes. The loss
of revenues could make remaining insurgents more open to a political
solution