This is one of the conclusions shared this Monday by the chief representative of the Bank for International Settlements (BIS) for the Americas, Alexandre Tombini, at the 15th Annual Conference of the Central Reserve Bank of Peru.
The changes in the geography of capital flows and trade that are coming in the next decade could offer an opportunity for Latin American countries to attract more capital, with which they could boost growth and their weight in the global financial system.
This is one of the conclusions shared this Monday by the chief representative of the Bank for International Settlements (BIS) for the Americas, Alexandre Tombini, at the 15th Annual Conference of the Central Reserve Bank of Peru.
During his speech, Tombini analyzed how the geography of global capital flows has changed over the last decade. More and more observers recognize that emerging market economies have a growing presence not only in economic activity and trade, but also in financial markets.
Emerging market economies – including those in the Americas – hold a substantial portion of the Treasury bonds of the United States and other advanced economies.
Furthermore, regions such as Latin America are home to many multinational companies that operate globally and, increasingly, some of them are home to financial institutions that operate in their respective regions or even worldwide.
The second change is the result of the recent series of trade conflicts between key economies and a rise in geopolitical tensions. Along with several important structural trends, this has led to a realignment of trade flows and, to a lesser extent, investments.
The realignment is particularly visible in the commercial sphere. Since 2018, when the United States first introduced tariffs on Chinese imports, China's share of US imports has fallen six percentage points, to 14% at the beginning of 2024.
Thus, annual US imports from China were 20% lower in January 2024 than they would have been if China had held its share of US imports constant.
Mexico and Canada (likely offshoring destinations) have benefited modestly, but enough for Mexico to overtake China as the main source of US imports by the end of 2023. This contrasts with losses in Peru's share of US imports , Colombia, Brazil and Argentina.
This likely reflects limited integration into global value chains (GVCs) for these economies. In fact, most Latin American countries (except Mexico) focus on upstream export products such as fuels, metals and food.
Less than a third of exports from Brazil, Argentina and Colombia are linked to global value chains, compared to 60% in Vietnam. Mexico is in the middle, with 46% of its exports linked to global value chains.
Unlike changes in trade flows, lower FDI and portfolio investment flows to China were not offset by higher flows in other countries.
FDI in Latin America in 2022 and 2023 was roughly in line with values recorded in previous years, while investment in portfolio debt was considerably lower.
"But it is early. It is certain that some of the previous changes will be maintained or even accelerated," said Tombini, thus reiterating that the changes in flows could continue to change in the next decade and bring new growth opportunities for Latin America.
