The UK’s relationship with countries in Latin America

On 7 December 2023 the House of Lords is due to debate “the UK’s relationship with the countries of Latin America, and the political trends and economic developments in those countries”. The motion was tabled by Baroness Hooper (Conservative), a vice-chair of the All-Party Parliamentary Group on Latin America and various other Latin America-related groups.^[1] Baroness Hooper is also an honorary vice-president of Canning House, a UK-based forum on Latin America.^[2]

Latin America is commonly defined as comprising those countries in the Americas that count Spanish or Portuguese as official languages.^[3] This includes much of South and Central America, Mexico in North America and certain islands in the Caribbean.

1. Economic developments in Latin America

In September 2020, the International Monetary Fund (IMF) assessed that Latin America and the Caribbean had been hit harder by the Covid-19 pandemic than other parts of the world, both in “human and economic terms”.^[4] By September 2020 it reported that the region had 28% of all cases of the disease and 34% of all deaths, despite having only 8.2% of the world’s population. In economic terms, the high proportion of jobs in “contact-intensive” sectors meant that unemployment rose particularly sharply compared with other parts of the world.

The pandemic followed a period of low growth for the region as a whole. A commodity boom supported economic growth during the early 2010s, but from 2014 to 2019 gross domestic product (GDP) growth averaged 1.0% per year, relative to 3.0% per year for the world as a whole. ^[5] The Economist suggested that the 2010s may have represented a ‘lost decade’ for the region.^[6]

Despite this challenging backdrop, various international organisations are suggesting that Latin America has, on the whole, recovered robustly from the pandemic and has remained resilient over the past few years in the face of a challenging global economic context. For example, the World Bank suggests that the region has “managed to weather relatively well the challenges it faced in the context of Covid-19 including rising inflation pressures, global economic uncertainty and rising debt”. It also noted that poverty and employment levels have returned to pre-pandemic levels.^[7]

IMF staff have attributed the region’s economic resilience to macroeconomic management.^[8] Rodrigo Valdés, director of the western hemisphere department at the IMF, observed that, like many other states, Latin American countries incurred significant fiscal deficits to help deal with the fallout of the pandemic. However, unlike many of their global counterparts, they “withdrew the large fiscal expansion deployed during the pandemic in a timely manner”. Countries in the region also “acted with exceptional swiftness” as inflation began to increase, raising interest rates “earlier and to higher levels” than other countries. As a result of this policy action, as well as improved systems of financial regulation and supervision that have been implemented over the past two decades, the region “successfully navigated economic turmoil” and “did not suffer any significant financial stress”.

Chart 1 below illustrates Latin America’s swift economic recovery from the shock of the pandemic, showing that by 2022 GDP per capita was above pre-pandemic levels. However, by placing that recovery in a longer-term context and considering its performance relative to other regions, the extent of Latin America’s economic stagnation becomes clear. GDP per capita in 2023 is expected to be no higher than it was in 2013, a situation unique among the regions that the IMF classifies as ‘emerging market and developing economies’.

Chart 1: GDP per capita of emerging and developing regions, 2013–23

Going forwards, growth is expected to remain weak. The World Bank reports that this is partly due to the challenging global backdrop, but also due to “structural issues” in the region.^[9] The bank suggests that regional growth “continues to be hindered by low levels of capital accumulation and productivity growth” and that implementing reforms that address these issues should be important priorities for governments in the region.

In its most recent ‘Latin American economic outlook’, the Organisation for Economic Co-operation and Development (OECD) also pointed to structural issues. It said these included “fragile social protection systems; low productivity; weak institutions; and an environmentally unsustainable development model”. Going forwards, the OECD said:

A systemic green and just transition could help the region overcome its development “traps” and strengthen its resilience while improving Latin Americans’ well-being. Latin America and the Caribbean is highly exposed to the effects of climate change and, as such, governments should seize the recovery as a strategic opportunity to launch broad and deep transformation.

The OECD suggested that the region should harness the “potential of the green transition to build a more inclusive development model”. It said that the region is in a “strategic position to supply key minerals for the green transition”, noting that, as of 2017, it was estimated to contain 61% of global lithium reserves, 39% of global copper, and 32% of global nickel and silver. In relation to this, the United Nations Conference on Trade and Development has reported growing foreign investment in the region.^[10] It said that “foreign direct investment (FDI) flows to Latin America and the Caribbean rose by 51% to $208bn in 2022, sustained by higher demand for commodities and critical minerals”.

Despite this potential, the IMF argues that economic risks for the region over the coming years are “tilted to the downside”.^[11] It highlights a series of external risks, such as “lower growth in main trading partners, commodity price volatility, new inflationary shocks, renewed turbulence in global financial markets, and an intensification of geopolitical tensions”. The IMF also notes that climate-related shocks will pose “important challenges over the short and medium term”. For example, it says:

The region should also prepare for the impact of El Niño as this climate phenomenon could negatively impact economic activity through floods in Ecuador and northern Peru, and through droughts in Colombia, Central America, and southern Peru. Luckily, other countries like Argentina, Paraguay, and Uruguay may benefit from a much-needed increase in precipitation.

Over the medium term, the IMF assesses that “prospects for strong growth across Latin America remain subdued”. It forecasts that regional GDP growth will average 2.5% over the coming years, significantly lower than the 4.4% annual growth it expects for emerging market and developing economies more generally.

2. Political trends in Latin America

The election of a series of left-leaning governments over recent years has led commentators to suggest that Latin America was experiencing a second ‘pink tide’, reminiscent of the first pink tide which saw a series of left-wing governments elected in the early 2000s.^[12] The October 2022 election of Luiz Inácio Lula da Silva (‘Lula’) to Brazil’s presidency was an example of this trend.^[13] Lula had been Brazilian president between 2003 and 2010, during the first pink wave, and his return to office meant that left-leaning leaders were then in charge of the region’s five largest economies: Brazil, Mexico, Argentina, Colombia and Chile. The Economist estimated that by the start of 2023, of 19 countries in the region, 12 were run by left-wing governments, with those countries representing 92% of the region’s population and 90% of its GDP.^[14]

However, the dominance of left-leaning governments in the region was altered on 19 November 2023, as Javier Milei, a libertarian and self-described ‘anarcho-capitalist’, was elected president of Argentina.^[15] Mr Milei made a series of radical promises, such as cutting state spending by 15% of GDP, abolishing around half of government ministries, abolishing the country’s central bank, and dollarising Argentina’s economy.^[16] However, while Milei has a presidential mandate, it is unclear whether he will have legislative support to pass such policies and he has since nominated a former finance minister from the centre-right bloc to serve as economy minister.^[17]

Difficulties constructing legislative majorities also look set to hamper the ambitions of many left-wing leaders in the region. For example, the Economist suggests that in 2024 the left-wing presidents of Chile and Colombia, elected with strong personal mandates, will continue to struggle to pass the more ambitious aspects of their agendas.^[18] Writing in America’s Quarterly, Will Freeman, a fellow for Latin America studies at the Council on Foreign Relations, suggests that left-wing leaders face structural constraints to implement their agendas, given the nature of the reforms they are pursuing:

Latin America’s conservatives, who promise tough-on-crime policies and conservative policies on social issues, can accomplish important parts of their agendas through executive power. But there are no presidential solutions to the left’s big concerns, like unequal access to public services, wealth inequality or tax evasion—at least not moderate ones that respect checks and balances.^[19]

Freeman suggests that current left-leaning governments will struggle to stay in power over the coming years, as they do not have anything like the “strong parties or social movements behind them” that leaders did during the first pink wave in the 2000s. This is on top of a more challenging environment for political incumbents in the region. Freeman reports that “incumbent parties have won just five of 31 presidential elections across the region since 2015”.

3. UK’s relationship with the countries of Latin America

In its 2021 integrated review of security, defence, development and foreign policy, the UK government set out its aims for working with the region:

In Latin America and the Caribbean, the UK will continue to develop a strong set of partnerships based on shared democratic values, inclusive and resilient growth, free trade and mutual interest in tackling serious and organised crime and corruption. With at least 23% of the world’s tropical forests, 30% of global reserves of freshwater and 25% of the world’s cultivable land, this region is also a vital partner in tackling climate change and restoring biodiversity.^[20]

Identifying specific countries and challenges, the review said:

We will deepen our ties with Brazil and Mexico, strengthening partnerships on trade, innovation, climate, security and development as well as working with Argentina, Chile and Colombia to support our interests. We will continue to defend the UK’s sovereignty of the Falkland Islands, South Georgia and South Sandwich Islands [which are all claimed by Argentina] and ensure the interests of the 3,500 people who live there are protected in line with the principle of self‑determination.

In May 2023, the then foreign secretary, James Cleverly, gave a speech in Chile where he “outlined the ambitious future of UK-Latin America relations and called for the region to be given a greater voice on the world stage”.^[21] Mr Cleverly said that “countries across Latin America have a decisive role to play in reshaping the international order and the multilateral system to fit the world of the 21st century”. He said the UK recognised that multilateral institutions needed to become more representative—economically, politically and demographically—and that he wanted the UK to work with the countries of the region to effect change, for example by supporting Brazil’s bid to sit as a permanent member of the UN security council.

Mr Cleverly noted that UK trade and investment levels in the region had recovered from their post-pandemic low, but that Latin America still only represented 2% of UK imports and 2.5% of UK exports. (A breakdown of UK exports and imports with the region’s five largest economies is provided in table 1 below.) Therefore, he said there was “much more to do on trade and investment”. Mr Cleverly also said that “our shared strategic focus on critical minerals, green hydrogen and sustainable infrastructure is encouraging”.

Source: Office for National Statistics, ‘09 Geographical breakdown of the current account, the pink book’, 31 October 2023

Reporting Mr Cleverly’s speech, the Financial Times (FT) suggested that the UK faced an “uphill struggle” competing with China in the region.^[22] It noted that China’s “voracious appetite for food and critical minerals” had made it South America’s biggest trading partner in recent decades and that Chinese companies had been “buying up lithium and copper mines across the region”.

In addition to this challenge, the FT said there were questions over whether UK attention on the region would be sustained. Jeremy Browne, chief executive of the UK-based Latin America forum Canning House, said that while the foreign secretary deserved credit for “swimming against the institutional tide to give greater attention to Latin America”:

The test will be whether the foreign secretary and wider government can sustain a more multidimensional global outlook, moving from a narrow view of foreign policy interests to embrace new partnerships in previously neglected parts of the world such as Latin America.^[23]

In 2020, Canning House produced a report suggesting that a previous government initiative, launched in 2010, for increased UK engagement in the region had delivered “mixed results”.^[24]

Trade relations with countries in the region are largely governed under the terms of continuity trade agreements—agreed as the UK left the EU—which generally replicate the agreements that were already in place when the UK was a member of the EU.^[25] In terms of initiatives to improve trade relations, the UK formally agreed to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in July 2023.^[26] Along with certain Asia-Pacific countries, the CPTPP trade bloc contains three Latin American countries—Chile, Mexico and Peru—with several others having applied to join.^[27] Negotiations are also underway with Mexico to update the existing UK-Mexico trade agreement, which largely replicates the agreement Mexico has with the EU.^[28]

In July 2023, Lord Storey (Liberal Democrat) asked the government what assessment it had made of “the UK’s future relations with growing regional powers in (1) the Indo-Pacific region, and (2) Latin America”. Lord Ahmad of Wimbledon, minister of state in the Foreign, Commonwealth and Development Office, replied as follows:

As the foreign secretary has set out, the UK is committed to making a long term and sustained effort to revive old friendships and build new ones, reaching far beyond our long-established alliances. This includes increasing the UK’s engagement with countries in the Indo-Pacific region and Latin America, strengthening our relationship in areas of mutual interest such as defence, security and trade partnerships, and upholding and promoting the international rules-based system.^[29]

4. Read more

Further information and statistics on individual countries can be found via the IMF’s ‘Country information’ pages and on the Europa World (£) website.

• Canning House, ‘Publications’, accessed 1 December 2023 (this lists their papers on the region)
• Chatham House, ‘Americas’, accessed 1 December 2023 (this lists their papers on the region)
• Economist (£), ‘Latin America could become this century’s commodity superpower’, 8 August 2023
• QSD on ‘Central America: Trade and investment’, HL Hansard, 19 December 2022, cols 1018–38
• House of Lords Library, ‘UK trade and investment with Central America’, 15 December 2022

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Cover image by Isabela Kronemberger on Unsplash.