Latin American Countries can establish a monetary union like the Eurozone with membership drawn from different countries in the region. It is important to note that the region has several official languages, with Spanish and Portuguese being the most common languages used in Latin America. The region has 30 countries within its boundaries that have different characteristics from each other. Some countries like Brazil and Argentina have bigger economies than others found in the region. Therefore, the region will need to adopt a primary currency and sole legal tender that will help the region be economically stable. However, not all countries in the region would be able to qualify to be members of the monetary union. It is important to have a mixture of countries with different official languages adopted into the system. If a selection were to be conducted, it would be useful to select countries that speak other languages in addition to Spanish, Portuguese, and English.
The Latin American monetary authority can be crafted similarly to the Eurozone to create a “Latino system.” The Latin American Central Bank should be created to set monetary policies for the Latin American countries under the monetary union. The central bank will be headed by a president and a board that will include heads of central banks from the member countries. The Latin American Central Bank will have the primary task of keeping inflation in Latin American countries under control. Members will not be allowed to implement individual monetary policies, which are sometimes necessitated by conditions in individual countries. The process of selecting countries as monetary union members should be based on various factors, including compatibility, complementary products, and manufacturing. It will be useful to integrate countries with large economies with those having small economies. In such a case, countries such as Brazil and Argentina can be integrated with Haiti, Jamaica, and the Dominican Republic.
However, this arrangement should be measured so that countries with small economies do not burden those that are economically superior. It should be noted that there exists the possibility of economically superior countries bailing out countries with small economies because of debt. As was the case with the economic slump of 2008-09, the high cost of the banking sector became necessary due to the property crises. There is also the situation where poor competitiveness between these countries can result in structural growth weakness (Schoeller & Falkner, 2021). Therefore, it is important to merge economically superior countries with those with small economies after considering their compatibility and complementarity. For instance, Argentina and Haiti are economically compatible because of trade between the two nations. Haiti exports essential oils to Argentina and imports dried legumes. Even though the trade balance between the two countries is heavily skewed in favour of Argentina, the two countries seem to be economically compatible. The products traded between these countries are complementary, making the two countries’ integration a worthwhile cause. The example of Argentina is also relevant when one looks at the interaction between a large and a small country or a wealthy and an emerging country. However, there should be a strong appeal between the two countries to want to integrate. The main factors to ensure that such an arrangement is not problematic include public debt, the balance of payments, unregulated capital inflows, and the overvaluation of the exchange rate.
Balancing countries based on their industrial, agricultural, or service strengths is important in integrating Latin American countries into a monetary union. The Latin American region relies heavily on the export of raw materials, including oils and fuels. However, some countries have moved away from such a trend and diversified their economic activities by joining global and regional supply chains. In selecting members of a Latin American monetary union, it is important to consider countries such as Mexico, Dominican Republic, and Costa Rica, which have attracted investments from North America Salvador (Soria, 2019). They have, therefore, increased their economic integration and established their local manufacturing capacities. Such countries have leveraged cross-border supply chains and have a large share in the parts and accessories trade.
Many countries in Central America attract huge foreign investments and economic integration from North America not because of geographic considerations but due to cross-country variations. Panama and Costa Rica are good examples of Latin American countries that have been able to integrate more easily into the cross-border supply chain than their neighbors, such as Guatemala, Nicaragua, and El Salvador (Soria, 2019). However, when selecting countries as monetary union members, countries like Mexico, Costa Rica, and Panama should top the list. It is also important to consider countries such as Nicaragua and Guatemala due to their agricultural capacity. Integrating countries based on their strengths will help create a monetary union that is economically diversified, which is good for trade.
The currency for such a union should be derived from the strongest currency in the region. If that were the case, then the union should adopt the Brazilian Real as the union’s single currency. When the union is finally established, there will be a lot of benefits that major corporations in the regions would enjoy. The introduction of a single currency would increase trade in the region by eliminating the risk of exchanging money. Most businesses would be able to negotiate for the best prices from suppliers in the region. The single currency effect will make prices more transparent and stimulate competition among firms using the same currency. More sales would be because of an expanded market using a single currency.
In selecting countries for the monetary union, it is important to consider the issue of political turmoil and corruption afflicting many Latin American countries. The most corrupt countries include Mexico, Brazil, Argentina, and Guatemala. Moreover, countries such as Venezuela are always experiencing political turmoil. High-ranking state officials and political leaders have been accused and prosecuted for corrupt practices in these countries. However, a country can still be integrated into the union if it follows a set of ethical practices to rectify the problem. Such solutions lie in changing the cost-benefit analysis of corruption (Silva, 2018). Adopting a policy that sets higher costs for the benefits of corruption will reduce the rate of corruption in these countries. These higher costs might include losing stolen funds, severe jail sentences, and public shaming for corrupt individuals and their families. Secondly, there is a need to strengthen public institutions that create independent judicial systems to prosecute crimes. Moreover, childhood education can also be used as a long-term solution to reducing corruption. Children should be taught about their civic duties of being good citizens by instilling a sense of nationalism early. They should understand how democratic governments operate and appreciate human rights and various freedoms. Such interventions can go a long way in improving such countries’ political and social situations.
By integrating countries with industrial-strength, agricultural experience, and service strength, the union would be self-sustaining, where all aspects of the supply chain would be incorporated. It would use the agricultural capacities of Nicaragua, Guatemala, and Haiti and the service strength of Costa Rica and Panama to create a supply chain that can foster economic growth for individual countries irrespective of their size. Individual member countries would depend on agricultural production, industrial production, distribution, and other services (Sinha, 2019). The association would bring a competitive business environment to compete with other countries or alliances. The two leading industries in this union include the thriving parts and accessories industry and the agricultural industry. Many Latin American countries are largely agricultural economies that export agricultural products and raw materials to other countries. On the other hand, some countries can also leverage cross-border supply chains and have taken advantage of the parts and accessory sector, which is more or less a service industry. These industries can only get stronger if there is an expanded market demand for agricultural and industrial products necessitated by an enlarged market. The union would expand the Latin American market, which would lead to increased demand for products and services.
References
Janeiro Soria, M. (2019). What is the effect of trade liberalization on inequality in the context of Latin American countries? How does corruption matter? (Doctoral dissertation, the University of Groningen. Faculty of Economics and Business).
Schoeller, M. G., & Falkner, G. (2021). Acting in the Shadow of German Hegemony? The Role of Small States in the Economic and Monetary Union (Introduction to the Special Issue). German Politics, 1-21.
Silva, P. (2018). Corruption and the current Political Turmoil in Latin America: Is There a Way out? Retrieved from: Corruption and the current Political Turmoil in Latin America: Is There a Way out? – Leiden University (universiteitleiden.nl)
Sinha, R. (2019). What Explains Latin America’s Low Share of Industrial Employment? Policy research Working Paper 1879.