Update Country Report Curaçao 10 Nov 2016

The US president-elect, Donald Trump, did not articulate a comprehensive foreign policy approach during his campaign, and beyond emphasis on building a wall on the Mexican-US border to staunch illegal immigration, he gave little detail about policies towards Latin America. Yet two of the main themes of Mr Trump's campaign-trade and immigration-are likely to dominate the hemispheric agenda, and he may also revise his predecessor's conciliatory approach to Cuba. Mexico-for which the US is the main trading partner-will be hardest hit by Mr Trump's policy direction. South American countries will mainly be off his radar, but there is a risk of protectionist policies damaging some of the region's agricultural exports to the US.

Nervousness over Mr Trump's potential shift away from a liberal trade policy was manifest in the sinking of Mexico's peso on election day and immediately after. The currency lost 15% of its value on November 8th, and stood at Ps20.5:US$1 on the morning of November 9th (compared with Ps18.6:US$1 on November 7th). The knock to confidence will produce real economy effects in Mexico in the short term, in the form of weaker private consumption and fixed investment. Should Mr Trump follow through with his promise to alter the North American Free-Trade Agreement (NAFTA) or impose trade barriers, Mexico's economy would be affected more dramatically.

Owing largely to NAFTA, economic linkages between the two countries are tight, with cross-border supply chains having been built up over many years. Around 80% of Mexico's exports are sent to the US. The effects on Mexico will depend, however, on the extent to which Mr Trump pursues his protectionist agenda: severe measures could trigger a sharp recession and a much weaker peso. Mexican policymakers have not yet announced any contingency measures, but will remain vigilant.

TPP aside, other existing trade agreements have not been targeted

Beyond US-Mexico trade ties, one initiative that is certain to be abandoned by Mr Trump is the Trans-Pacific Partnership (TPP), a free-trade agreement (FTA) encompassing 12 countries, including Mexico, Peru and Chile. The US already has separate FTAs with Peru and Chile, but these have escaped Mr Trump's anti-trade rhetoric, partly reflecting a low level of manufactured exports from these countries. Yet the TPP agreement would have served to facilitate greater trade with them.

Likewise, there was little in the Trump campaign specifically directed against Central American countries that form part of the Dominican Republic-Central American Free-Trade Agreement (DR-CAFTA). Instead, the risk for these countries would be through the immigration policy channel, given their heavy reliance on workers' remittances from citizens living in the US.

Mexico would be the country most vulnerable to any change in immigration policy, whether involving the building of a border wall or any attempt to deport the estimated 11m undocumented workers in the US, most of whom are Mexican. Although mass deportation is widely deemed to be logistically impossible, the threat would contribute to tension between the two countries that would impede co-operation in other areas, including security and the interdiction of illegal drug-trafficking.

No rollback, but no progress on Cuba relations

Besides Mexico, the other Latin American country exposed to a significant policy shift under a Trump presidency is Cuba. Although Mr Trump had expressed support for ending the embargo on Cuba early in his candidacy, he changed tack in October, probably to appeal to conservative Cuban-American voters in Florida, a key swing state. Mr Trump derided the rapprochement with Cuba initiated by the current president, Barack Obama, and said that the US should strike a "better deal". He has said that he would roll back some of the executive orders that Mr Obama has issued to loosen restrictions on finance, travel and trade involving Cuba, as well as stating that he would base future relations with Cuba on concessions made by the Cuban government, including release of political prisoners and introduction of democratic reforms.

Despite Mr Trump's statements on Cuba, The Economist Intelligence Unit believes it unlikely that he will completely reverse Mr Obama's policies. Diplomatic relations have been restored and US businesses have already made investment plans for eventual entry into the Cuba market. US air carriers have begun direct flights to Cuba this year, and other US firms in the travel and tourism industry have entered the market. US businesses have also lobbied for an end to the embargo, and public sentiment in favour of its lifting is growing. Hence, any rollback would generate little political gain for the new president. Nevertheless, we do not envisage further progress towards normalising relations or a lifting of the embargo in the next few years, and certainly not as long as Raúl Castro remains Cuba's president. Mr Castro is set to step down in 2018.

South America not on the agenda, but agricultural exports could be hit

Latin America's largest economy, Brazil, appears to be off Mr Trump's radar-there was no mention of it during his campaign. Engagement under the Obama administration has been fairly low key, notwithstanding some improvements in trade facilitation, and there probably would not have been more active policies from a Clinton government. In this sense, there is unlikely to be much of a change under Mr Trump.

That said, there is a risk of US agricultural companies lobbying Mr Trump to introduce tariffs and non-tariff barriers on certain agricultural items, such as ethanol, and possibly other items such as steel. The risk of greater US agricultural protectionism also clouds the outlook for Argentina-US relations. A more isolationist US trade policy would stymie incipient efforts by new centre-right governments in Argentina and Brazil to open up trade ties, and as a result these South American countries would look elsewhere to foster trade.

One potential hotspot in US-South American relations is Venezuela. Despite years of anti-US rhetoric by Venezuela's leftist government, there has been little conflict in practice, particularly with regards to the economic relationship. The US is Venezuela's largest export market (accounting for 38% of exports, mostly oil), and Mr Obama has largely ignored verbal provocations from the government of the Venezuelan president, Nicolás Maduro. However, this may change with Mr Trump in power, given his desire to appear strong on the world stage. Mr Maduro risks significant fallout if he continues to blame the US for the country's woes, as Mr Trump may be more open to taking retaliatory measures.

Aid flows could suffer

Given Mr Trump's much-professed aim to "make America great again" and his apparent aversion to overseas entanglements, US military and economic aid to Latin America may be reduced. Anti-drug-trafficking assistance to the region already has been scaled back in recent years-falling by 36% from 2009, to US$1.6bn in 2016-in favour of prevention and treatment initiatives at home. This trend will continue under Mr Trump, most strongly affecting Central American countries battling high rates of drug-related violence, but also Colombia, which has been the largest recipient over many years of US funding to fight drug cartels and leftist guerrilla groups engaged in the drug trade.

Some smaller programmes supported by the US are likely to continue, such as the Caribbean Energy Security Initiative, designed to help countries become more energy self-sufficient and less dependent on cheap oil provided by Venezuela. But a Trump administration may reduce its emphasis on other initiatives, such as US-backed anti-corruption commissions.

Relations will be more volatile

Given Mr Trump's abrasive rhetoric about immigrants and Mexicans, and in the context of potential policy shifts affecting trade and aid flows, diplomatic relations between the US and Latin America are likely to be more volatile. Although social and economic ties between the US and most Latin American countries will remain strong, the risk of tension and a deterioration in relations will be high.

On a broader scale, Latin America stands to suffer from the global economic repercussions of Mr Trump's policies. His victory has already triggered wild gyrations in bond, stock and currency markets, and could further heighten global risk aversion. His policies could also threaten global trade growth and result in renewed volatility in commodity prices, to which Latin American economies are particularly vulnerable.

In this environment, there are some downward risks to our growth forecasts, and to our assumption that several economies in the region will embark on, or continue with, monetary easing in the coming year. We still expect 2017 to be a year of recovery for the region as a whole, but Mr Trump's policy stance could well weigh on sentiment in the short and the long term.