With talk of South-South trade cooperation gaining ground throughout the world in the post-crisis period, Luis Alberto Moreno, President of the Inter American Development Bank (IDB), Washington, DC, states that progress of trade between India and Latin America is hindered by high tariffs on both sides. Moreno, who will release a report on integrating and enhancing trade between India and Latin America at the Summit, tells Devika Banerji that India is the next big thing for Latin America.
How important is India for Latin America?
There is a lot of history behind this meeting (Indian Economic Summit) and earlier there has been a lot of talk of facilitation of South-South trade, but it has not taken off. After the financial crisis, everybody has woken up to it.
Things have been changing and this is the right time for both India and Latin American countries to enhance their trade. If both sides work together, it would be a huge opportunity for both of them.
What outcome are you expecting from the Summit?
I am here to promote the concept of South-South trade and how both India and the Latin American countries should reduce their trade tariffs in order to enhance relationship. Placed on opposite sides of the globe, India and Latin America have few cultural and historical ties and even though India is not yet on the radar of most Latin American and Caribbean policymakers and business men, particularly not to the extent China is, the region cannot continue to ignore the implications of its emergence.
There are also some similarities between the two countries — both have a young population, per capita income is comparable and both regions have stable macro economic conditions. Therefore it is the right time for both regions to come together for increased trade.
There has been talk of a lot of political cooperation between the two regions. It is now time for trade cooperation and that’s the kind of thing that we are looking to promote here.
You mentioned problems faced by India and Latin American countries as far as trade is concerned? Can you elaborate?
The trade tariffs are very high on both sides. India’s average tariff on Latin American agricultural goods is 65 per cent, more than five times China’s 12.5 per cent tariff. Latin American tariffs are not that high but are at around 9.8 per cent in case of manufactured products, which are much above the 5-6 per cent in the OECD countries. For example, a 10 per cent reduction in average tariffs imposed on Indian products, would increase imports of Indian goods by 36 per cent in Chile and Argentina.
Another problem is high transport costs. India, unlike China, has no direct shipping services to this region. This results in higher freight rates and shipping times. A 10 per cent reduction in freight rates would boost imports of Indian goods by around 45 per cent in Chile and Argentina.
The post economic crisis period continues to be a curvy journey, what is the status of world economy right now?
The big shock of the crisis is over. What we are seeing now are the after-shocks and there are many challenges before governments, the primary one being that of fiscal consolidation.
Emerging economies however are on a stronger footing and their strength is derived from their expanding domestic markets. The solution lies in integration of world economies and regions, and the G-20 is a good place to initiate the process. Policies will have to focus on things that will be good for the world economy as a whole.
To what extent were the lending activities of your bank impacted by the economic crisis?
Well, our lending activities saw a 12 per cent jump in 2009 after the crisis, as compared to before it hit, there was more need for liquidity, but this year it is going to be marginally lower than last year. India is not a shareholder of the bank; however, India has the potential to be an important partner for Latin America.
