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US To Pump Billions Into Mexico, Central America

Mexico

From Trump demanding that Mexico pays for a wall on its side of the border to claims and counterclaims of unfair trade deals, there never seems to be a shortage of drama between the two protagonists.

The irony of it, however, is that while doom and gloom headlines continue dominating the media, the relationship between the two continues to thrive. Mexican Foreign Minister Luis Videgaray best captured that sentiment when he declared in February that the two countries were “closer than it was with previous administrations... That’s a fact of life.”

And that has been exemplified once again by the U.S. promising to put its money where its mouth is…

The United States has pledged $5.8 billion in aid to develop Mexico and Central America, strengthen their economies and curb immigration. The aid package will be used to improve security conditions and job opportunities in Mexico and Central America to allow their citizens to enjoy more comfortable lives in their countries and not have to emigrate.

“I have a dream that I want to see become a reality ... that nobody will want to go work in the United States anymore,” enthused newly inaugurated Mexican President Andres Manuel Lopez Obrador after announcing the joint development plan between Mexico and the U.S.

Defying Expectations

The pledge is being viewed as a big win for Obrador, coming less than a  month after he ascended to Mexico’s most powerful office. Obrador was inaugurated on Dec. 1 after scoring a landslide victory in July to become the first Mexican president since 1988 to win an outright majority in both the Senate and Chamber of Deputies.

Obrador has been seeking to persuade president Trump to cooperate with Mexico to develop poor Central America countries including Honduras, Guatemala, El Salvador as well as Mexico’s impoverished South to minimize immigration.

Related: Bad News Builds For Global Markets

It’s a major win on two fronts: the fact that a deal has happened so soon and that it has defied expectations among skeptics that Obrador, a leftist, and Trump, a Republican, would clash. Trump had previously threatened to slash aid to the region if illegal immigration was not checked.

Much of the new pledged aid will take the form of private investment and will depend on the viability of projects while some of it was simply a reaffirmation of previous pledges. The fact that much of the investments will flow through OPIC (Overseas Private Investment Corporation) and cost the U.S. taxpayer nothing must have no doubt made the deal more palatable to the Trump administration. Mexican foreign minister Marcelo Ebrard revealed that Washington is committing a total of $5.8 billion towards the development of Central America with $4.8 billion flowing through OPIC. Of the OPIC amount, $2 billion will go to Southern Mexico and will be bolstered by another $25 billion from Ebrard’s government to develop the South over the next five years.

Returning the Favor

In the final analysis, Trump’s visibly softened stance towards Mexico might simply be his way of returning the favor after the two countries and Canada reached an agreement in August to replace the old and contentious NAFTA trade pact. After years of intense negotiations, the trio managed to reach an agreement to replace North American Free Trade Agreement (NAFTA) with The United States-Mexico Trade Agreement (USMCA).

The new deal is expected to last 16 years, considerably shorter than NAFTA’s 24-year lifespan. Trump said Mexican officials pledged to “start buying as much U.S. farm product as possible”.

One provision, in particular, seems to favor Mexican workers: starting 2023, 40-45 percent of automobile components will be made by workers who earn at least $16 per hour, meaning higher wages for Mexicans factory workers. But in reality, the biggest purpose it’s likely to serve will be to stop American automakers from shifting their factories to Mexico meaning less jobs for Mexicans.

The Mexican government has already pledged to offer immigrant workers visas to stay in the country if they qualify. It remains to be seen whether the U.S. will return the favor and allow the same for Mexican and Central American workers.

By Alex Kimani for Safehaven.com

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