December 11, 2017

Another view

Saturday, June 7, 2014

Mercosur at the crossroads

Bolivia''s President Evo Morales, Uruguay''s President José Mujica, Brazil''s President Dilma Roussef, President Cristina Fernández de Kirchner and Ecuador''s President Rafael Correa pose for a photo in December, 2012.
By Marcelo Falak
Ámbito Financiero
A change in Brazilian politics could push the union to shift its fundamental structure

Mercosur is asleep but it could soon start to suffer nightmares.

Brazil, the bloc’s giant, is distracted with the World Cup about to begin, but when it finishes, all the talk will be about a short electoral campaign toward the October 5 national election. Dilma Rousseff still leads the opinion polls but her advantage is shrinking and the advance of the Social Democrat (a conservative, labels aside) Aécio Neves seems to set the stage for a run-off.

Thus it is not possible to rule out that the era of the Partido dos Trabalhadores could end and with it Planalto’s policy towards a strong Mercosur. Neves, perfectly in tune with the Sao Paulo big business industrial lobby, proposes that the Mercado Común del Cono Sur will no longer be a customs union (i.e., a single market vis-à-vis other countries and blocs) but, instead, that it reverts to being a mere free trade agreement.

If Brazil gave customs preferences to, let us say, the United States or China, it would surely displace the industrial exports of Argentina and Mercosur would become effectively meaningless.

“Mercosur is an anachronism not serving any interest of the Brazilian people,” Neves said recently in Porto Alegre.

Sao Paulo industry, organized in the powerful FIESP, thinks the same way. For FIESP, Brazil is already prepared to compete with its biggest companies in a globalized market and thus belonging to a protectionist bloc does no good.

Not everyone feels that way in Brazil, of course, and other sectors of the productive sector still depend largely on the exports to South America in general and to Argentina in particular. A very fierce fight is on the horizon.

But how could it be possible that PT rule could come to an end, after all the talk about Brazil’s great advances?

First, 12 years is a lot for any leadership. Second, Rousseff lacks the charisma of Luiz Inácio Lula da Silva. Third, growth has been very modest during her term, making clear that in the last few years there has been a lack of good administration and not a minor dose of marketing. Fourthly, some allied parties are exposing doubts about continuing to support the government because of the lack of guarantees which the polls suggest. Last but not least, the sensation of corruption has been widespread throughout the PT era and the organization of the World Cup has only heightened that feeling.

Neves, the grandson of Tancredo (the 1985 president-elect who died before his inauguration), promises a better administration and shows off his record as a governor of Minas Gerais. This is the second electoral district of Brazil after Sao Paulo, the old stronghold of his party, the PSDB.

On the other hand, it could be difficult for him to escape the label of the “party of the rich” attached, with a fair dose of justice, to the PSDB.

Uruguay has just celebrated its primary elections, crucial to define its course for the next four years, and is preparing itself to vote in October too. A difficult campaign starts, in which the governing Broad Front this time really risks power.

However, there is a curious consensus among the three main candidates who will compete. Leftist Tabaré Vázquez, the nationalist (White) Luis Lacalle Pou and the Colorado (Red) Pedro Bordaberry agree that the bloc should be more flexible in order to allow its members to negotiate trade agreements with other countries by themselves. A well-known tune.

Vázquez has already made it clear that his economy minister would be current vice-president Danilo Astori, the most free-market leader in the Broad Front, a strong critique of Kirchnerite protectionism and an enthusiast of a “flexible” Mercosur.

Vázquez himself, let us remember, has experienced as president a harsh conflict with Argentina because of the Botnia pulp mill issue and has even imagined a possible war, for which he asked the help of the always ready George W. Bush.

Lacalle Pou, the son of former president Luis Lacalle, has said that President Cristina Fernández de Kirchner’s policies are “pathological” and also vowed to increase, in solitude if necessary, trade ties with extra-Mercosur countries, following the Chilean path.

And Bordaberry, son of former dictator Juan María, said a month ago that Uruguay and Brazil “should not wait any longer” to sign a free trade agreement with the European Union, leaving behind even other members of the bloc, i.e. Argentina, of course.

Finally, the Paraguayan President Horacio Cartes is a businessman also ready to support the vision of a more free-market Mercosur.

It is surprising that this subject is not present at all in the very premature electoral campaign Argentina is experiencing. The main candidates, from Daniel Scioli to Sergio Massa, from Mauricio Macri through Hermes Binner, from Florencio Randazzo to Julio Cobos, seem to consider Mercosur to be a given fact not subject to possible changes. A serious mistake, as we are experiencing.

There is a broad consensus in Argentina that the bloc should continue being a customs union, in which the country will have, after the 2015 election, the responsibility of solving many hiccoughs. Except for Macri, this is the kind of argument used by the main economic advisors of those candidates.

And they are right. Inflation well above peso devaluation for too many years has led to an increasingly protectionist policy directed to guaranteeing a trade surplus eroded by the energy crisis. Moreover, the decision to pay public debt with Central Bank reserves and their subsequent decline has accelerated the protectionist tendency and infuriated even more our neighbours. There is an urgent task there.

However, Mercosur is not a given fact, especially if there is a political turnaround in Brazil. In that case, the pressure for a flexible bloc would be boosted, signalling a crossroads for Argentine industry.

Near Macri there are specialists who propose a gradual flexibilization by giving Mercosur countries special waivers to negotiate alone with other markets, something that advisors of the rest of the candidates reject. Is that a desirable model for Argentina? What would the next government decide if centrifugal forces start to predominate in Mercosur?

What is at stake is no longer whether progressive government will continue to predominate in the region, but something much deeper. And we seem badly prepared for what could be awaiting us.

From October to October, 2015 a lot of things could change. Let us pay more attention to subterranean noises before they become a worrying outcry.

* Marcelo Falak is a political scientist and international news editor with the daily Ámbito Financiero.

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