Paulo Roberto de Almeida
Brasília, 20/08/2016
Latin American
development trends and Brazil’s role in the region
Paulo Roberto de Almeida
Diplomat; Professor at Uniceub (Brasília)
Article prepared for International Relations
Journal of the People’s Friendship University
of Russia (PFUR)
Outline:
1.
Latin American recent development trends
2.
The integration process and its peculiarities
3.
Fragmentation of development policies and of the integration process?
4.
Brazil’s economic and political role in the region
5. Assessment
and prospects: more of the same for Latin America?
1.
Latin American recent development trends
Since the
implosion of socialism in the former Soviet Union – or perhaps even earlier,
since the beginning of China’s transition to capitalism, under Deng Xiao-ping –
the world economy has entered in what has been called the third wave of
globalization; the two previous were, the global unification of the known world
first started by the great navigations of the 16th century, soon
afterwards closed by colonial exclusions, after which came the true
constitution of a world economy under the second industrial revolution, during
the short lived Belle époque
(1870-1914). Interrupted temporarily by the First World War and effectively barred
by the Bolshevik revolution in half of the Eurasia continent, globalization
receded for at least three generations, as not only Russia (with some other
satellites, conquered after the Second World War) but also newly independent
countries from Latin America chose to partially retract from the world economy in
order to start national development processes, characterized by introverted
sectorial economic policies, trade protectionism, industrial nationalism and
State intervention.
It is
important, methodologically, to make a distinction, albeit a formal one, between
three historically successive configurations of the global market system: (a) a
world economy, such as the one inaugurated by the great navigations linking the
Western Europe to old nations in the Asia Pacific and the new lands in America;
(b) an international economy, such as the one arising from the first and,
especially, the second industrial revolution; (c) the current interdependent
economy, started at the Bretton Woods (1944) and the Havana (1947-48)
diplomatic conferences, which created the new institutions of our world
economic order, spanning originally from the Western capitalist economies to
some other market economies in the extreme East (Japan, for example),
encompassing most of the dependent periphery – that is, the so-called Third
World – but excluding the so-called Second World, that is, the socialist
economies. These two were restricted to an asymmetric interaction with the
first ones, exchanging their raw materials and energy against manufactured
products and capital goods, importing capital, but with little or nothing to
say in the decision making process of the institutions representative of the
global capitalist system.
Notwithstanding
the fact that the international economy was interrupted in 1914, it became for
the first time in History a truly interdependent economy from 1945 onward, as guided
by the Bretton Woods institutions and the multilateral trade system embodied in
the Gatt,. A large part of national economies, encompassing perhaps more than
two thirds of the world’s population (counting in not only the Soviet empire,
but also Maoist China and semi-socialist India), remained, by and large, at the
margin of world markets and outside the international division of work, only
participating in international exchanges in a minor scale, mostly through the
commodities markets and a few other low-value added goods. Latin American
countries, for the most, not only confirmed their early historical features as primary
exporting economies, but, starting at the Depression of the 1930s, and more
actively since the 1950s, engaged in an import substitution industrializing process
that closed them off the productive integrated capitalist system, as
nationalistic inclinations drove their economic policies. Results from those
choices were mixed: if they acquired real capabilities in consumer goods
production, they remained dependent in capital goods and never acquired real
autonomy in innovation and high technology, not to mention their continued foreign
financing dependency and specialized know-how.
Permissive
monetary expansion, irresponsible fiscal policies, mismanagement in the
exchange regimes coincided with booms and busts economic cycles, recurring falls
in hyperinflation and eventual external debt crises, which led many of Latin
American countries to the emergency care units of the Bretton Woods
institutions, through IMF’s stand-by agreements. Brazil, Argentina and Mexico,
were champions in stabilization plans. Brazil specifically had, eight
currencies which replaced one another in a time span of three generations,
since 1942. However, within a single generation, it managed to replace its
currency six times from 1986 to 1994. Mexico also, despite being an oil
exporter, and benefiting from the rises in prices associated wit the two oil
shocks, incurred, like the others, in fiscal mismanagement, budget deficits and
heavy indebtedness. The external debt crisis of the 1980s were followed by
economic reforms in most countries of the region, under the label of neoliberal
policies, with their prescription of privatization, deregulation and the
reduction of the economic role of the State. Some countries performed
successfully the path towards stabilization and economic opening, like Chile,
while others did not achieve the complete set of reforms, such as Argentina and
Brazil.
The two
biggest countries of the Southern Cone emerged from the hard times of military
dictatorship, in the middle 1980s, with big challenges in the economic domain.
Both tried successive stabilization plans, with currency changes each time, and
finally conquered inflation through two contrasting ways: Argentina first, in
1991, by means of a currency board – that is, pegging its new currency to the
dollar, by a fixed parity – and Brazil three years later, in 1994, by means of
an indexed currency, then flexibly pairing it with the dollar, which served as
an anchor. Both plans entered turbulent times by the end of that decade: Brazil,
taken in the maelstrom of Asian financial crises and the Russian moratorium, was
forced to devaluate its currency, adhering thereafter to a floating exchange
rate and an inflation target regime; Argentina, because of a high indebtedness
and loss of external competitiveness (causing growing, unsustainable, trade
deficits), had to abandon its fixed parity, in the midst of a profound economic
crisis, accompanied by the insolvency of its whole external debt. Argentina
imposed an unilateral default on its foreign creditors, and remained excluded
from international capital markets since then.
2.
The integration process and its peculiarities
At the same
time they started the re-democratization process, Argentina and Brazil renewed
old projects for economic integration: confidence-building measures were
adopted in the nuclear domain, with new protocols guiding reciprocal
inspections in their respective nuclear installations. Agreements were signed
for a progressive liberalization of bilateral trade, and an integration treaty
was achieved in 1988 for a ten years delay in the implementation of a common
market. In 1990, this term was reduced to five years, inducing other countries
to join the move. Negotiations were held in the second semester of that year,
and, in March 1991, the Asunción Treaty was signed in the Paraguayan capital,
creating Mercosur, the Common Market of the South, adjoining Uruguay and
Paraguay to the two biggest countries of the Southern Cone; Chile was part of
the negotiation, but could not adhere to the group because some years prior it
had already reformed its tariff schedule in the Gatt system, adopting then a
single tariff, incompatible with the other countries’ planning for a Common
External Tariff.
Mercosur was
very dynamic in its early years, doubling its intra-trade and also increasing
external trade and investment links. Andean countries also rushed towards new
dynamics, transforming the old Andean Pact into the Andean Community of Nations
(CAN, in its Spanish acronym), while Chile pursued its solitary itinerary of
entering into free trade agreement with whichever countries available for that:
since middle 1990s, Chile, along with Mexico, signed almost three dozens
agreements of that type, opening market access with over 80% of the global GDP,
including the whole Americas, European Union and other European countries, half
of Asia (including Japan, China and Korea), and also Australia and New Zealand.
Compared to that performance, Mercosur and CAN have just a few trade
liberalization agreements (not full free trade), linking them reciprocally and
with just a few countries, however not the most important ones (Israel, South
Africa, and India, but just for fixed and limited trade preferences).
Advancing
into the new millennium, Mercosur accomplished almost nothing in terms of
commercial arrangements, having been diverted to a social and political agenda
by the new rulers in Brazil and Argentina, respectively the Worker’s Party (PT)
and a branch of the Peronist movement, now controlled by the Kirchner family. Some
Andean countries, such as Colombia and Peru, chose to follow Chile and Mexico
in the path of deep liberalization, negotiating free trade agreements with the
United States, the European Union, and other countries in the region and
elsewhere, especially in Asia. Most important, these last four countries
decided to undertake a new integration scheme, forming, in 2011, the Pacific
Alliance, formally establishing complete free trade amongst them, but in fact with
the objective of coordinating their initiatives towards the most dynamic region
in the multilateral trade system, the Asia Pacific basin, together with other
Western Hemisphere willing partners (such as Canada, USA, Mexico and others),
and also Australia and New Zealand.
The four Latino
countries of the Pacific coast have just one third of the Latin America’s GDP,
less than the total of the five members of Mercosur – which accepted Bolivarian
Venezuela as a new member since 2012 – but they export about 60 percent more
than the Mercosur bloc, and are much more open to any kind of trade and
investment links. Mercosur, less successful because of the policies followed
since early 2000s by Argentina and Brazil, was diverted from its original path and
became a mere consortium devoted to rhetoric exhortations in favor of
integration while accomplishing very little towards the implementation of this
objective. Attentive observers are making more optimistic prospects for the
Pacific Alliance than for Mercosur, considered by many of those a failed
undertaking, not exactly because of its start as a customs union, but because
of the erroneous national economic policies followed since 2003.
Unasur, the
Union of South American Nations, created by a Brazilian initiative aiming to
“liberate the region from the heavy hand of the Empire” (the US), is just one
more ineffective piece of rhetorical fervor in favor of integration while being
dominated by the same Bolivarian countries – Venezuela en tête – which spouse an anti-imperialist speech in place and lieu
of true integration projects. Since its inception, it has advanced nothing in
terms of physical integration of South American countries – its original
endeavor – but accomplished everything in defense of the said Bolivarian
countries, a bunch of populist and authoritarian regimes, which are destroying
the bases of market economies and democracy in the region. Unasur has done
absolutely nothing, for instance, in face of continuous violations of human
rights and democratic freedoms in Venezuela, agonizing now in a deep economic
and political crisis.
Ten years
prior, the same group of countries – Argentina, Brazil and Venezuela – now leading
Unasur into its Bolivarian path, were responsible, at the Americas Summit of
Mar del Plata (November 2005), for the implosion of the American project of a
Free Trade Area in the Americas (FTAA), an initiative of the Clinton
Administration, launched in the Miami Summit (December 1994), with the
objective of liberalizing trade and investment flows in the hemisphere, and
creating common policies in some other areas (intellectual property, non tariff
barriers, sectorial regulations and so on). President Lula of Brazil was very
proud of this accomplishment, saying that the US led project was much more
directed to the annexation of Latin American countries than to a real economic
integration. One of the consequences of the implosion of the FTAA was the “minilateralist”
approach adopted since then by the U.S., linking like-minded countries in a
network of trade agreements and economic treaties that bypassed the obstruction
of the protectionist countries.
3.
Fragmentation of development policies and of the integration process?
Around the
time of the decolonization process, at the beginning of the 1960s, one of the
leading development economists, later to become Nobel, Gunnar Myrdal,
predicted, in a three volume research work, Asian
Drama, some notable things: that Asian countries were condemned to utter
misery and poverty; that if there were a group of countries capable of doing a
catching-up towards the developed club of countries – the OECD bloc – this had
to be the Latin American countries, independent since the early 19th
century, adopting self-sustained policies of industrialization and practicing
State guidance in the strategic sectors of the economy; and also that, if there
was one single country in Asia capable of repeating the feature, that should be
India, with its semi-socialistic planned economy, extensive controls over
foreign investment, trade and capital flows relying heavily on the State induced
stimuli in selected sectors of the economy. Myrdal was then praised as a
prescient economist and taken for his words.
History, and
the Asian countries (much more Pacific, than Southern Asia, or India) proved
Gunnar Myrdal totally wrong: a complete reversion occurred between one and
other group of countries: Pacific Asia and Latin America traded places in every
aspect of their development, in terms of rates of growth, fiscal patterns and respective
shares of world trade flows. This inversion of roles started in the sixties,
pursued throughout the seventies, and accelerated during the eighties, as
globalization started to encompass every corner of the planet, but with minor impact
in Latin America, Africa and Middle East. Just to follow the itinerary of some
selected countries in each one of the regions during the third wave of
globalization, it is enough to verify the departing level of average national
income per head, and the same level after three and a half decades of
differential rates of growth, as revealed in the table below.
|
Levels of GDP per capita (in Purchasing Power Parity) between 1980 and
2014, in some selected countries from Latin America and Asia Pacific
|
|||
|
Countries
|
1980
|
2014
|
2014/1980
|
|
Latin American countries
|
|||
|
Argentina
|
4.893
|
22.101
|
4.5
|
|
Brazil
|
3.690
|
15.153
|
4.1
|
|
Chile
|
2.921
|
23.165
|
7.9
|
|
Colombia
|
2.442
|
13.148
|
5.3
|
|
Mexico
|
4.980
|
17.925
|
3.6
|
|
Peru
|
2.965
|
11.988
|
4.0
|
|
Venezuela
|
5.754
|
17,917
|
3.1
|
|
Average: $, growth
|
4,607.50
|
20,232.83
|
4.39
|
|
Asia Pacific
countries
|
|||
|
China
|
250
|
12. 893
|
51.5
|
|
South Korea
|
2.302
|
35.485
|
15.4
|
|
Hong Kong
|
6.790
|
55.166
|
8.1
|
|
Indonesia
|
729
|
10.156
|
13.9
|
|
Malaysia
|
318
|
24.520
|
77.1
|
|
Thailand
|
1.090
|
14.442
|
13.2
|
|
Taiwan
|
3.570
|
43.600
|
12.2
|
|
Average: $, growth
|
2,508.16
|
32,760.33
|
13.06
|
|
Latin America to Asia Pacific income in 1980
|
1.83
|
||
|
Asia Pacific to Latin America income in 1980
|
0.54
|
||
|
Latin America to Asia Pacific income in 2014
|
0.61
|
||
|
Asia Pacific to Latin America income in 2014
|
1.62
|
||
|
Source: US$; Economy Watch (economywatch.com).
|
|||
Despite an
arbitrary selection of countries for each region, they seem to be
representative of the most dynamic countries in each side, albeit excluding
Singapore, a truly impressive case of rapid growth even more than that of
Malaysia, for instance. The figures confirm that the GDP per head growth in
Asia Pacific was almost eight times higher than its average level reached in
Latin America. Even excluding the “distorting” figures for China and Malaysia,
as both departed from very low levels, and those of Hong Kong, which already started
at satisfactory income level, the indicators there would still be four times higher
than the results achieved in the Latin American group.
Latin
American countries, during most of the recent times, and with few exceptions –
the “Asian tiger” here being Chile, in the same manner as Philippines was the “Latin
American laggard” in the Asia Pacific – have been protectionist, and too inclined
to State intervention, characteristics also associated with some Asian
countries in their respective phases of industrialization and accelerated
growth. The differences, probably, are to be located in education, fiscal
policies and external opening. Liberal reforms undertaken in Latin America
during the 1980s have partially stabilized economies plagued by high inflation
rates and monetary profligacy, but few countries – the exception being Chile,
again – pursued the structural reforms further, in order to open their
economies, liberalize trade, control State expenditures, qualify the work
force, improve the infrastructure, and attract foreign investments, including
in sectors previously functioning under State monopolies. Chile benefitted from
a complete set of reforms, and experienced Asian-like rates of growth for many
years. Other countries – either for lack of a competent leadership, or for the
well-known “raw materials curse” (the sad example is Venezuela of course) –
were condemned to an erratic boom
and bust process of growth, followed by recurrent crises or even recession. It
is not a surprise, historically, that Argentina, Brazil and Venezuela fit
exactly this unhappy pattern.
By and large,
most of Latin American countries remained confirmed in their roles of primary
products exporters, a characteristic even reinforced in the last decade by the
impressive growth of China, turned their first trade partner, taking the place previously
held by the United States for more than a century (but less in the case of
Argentina). The new dependency on Chinese demand is perhaps similar to the century
old colonial trade patterns between advanced industrial economies and the
colonial or semi-colonial periphery, that is, nowadays developing countries in
the Third World. Brazil, for instance, exports 95 percent of raw materials to
China and imports 95 per cent of manufactured goods from China. This asymmetric
relationship promises to endure for some time with no great changes in sight.
Any new Chinese investments in Brazil will be in infrastructure to facilitate
the exports of raw materials to feed its huge productive machine, or in
industries that will compete against American or European (or Brazilian)
factories, to supply the local markets and those of the neighboring South
American countries.
In recent
years, Latin American countries have differentiated among themselves along
three lines of development, encompassing grosso
modo the three more important groups in the region: the Alliance of the
Pacific is clearly identified with policies and practices that could allow its
members to be called “globalizers”, that is, open to free trade agreements and
almost no restrictions to foreign direct investments; Mercosur members for
their side, especially Argentina and Brazil, could be said to be “reticent
countries”, as they hesitate in the economic opening and trade liberalization,
and pursue old protectionist policies and State guidance for private
investment; finally, for lack of a better label, there is no proper designation
for the “Bolivarian” countries – Venezuela, Bolivia, Ecuador – because some of
them did not retract so deep in the State control, exchange manipulation,
nationalization and expropriation of private enterprises in the same manner as
Venezuela did, albeit all of them maintain a real mistrust of free trade and
normal market regulations. More important, this Bolivarian group share the same
populist and authoritarian behavior, with some reflections on the economic domain.
4.
Brazil’s economic and political role in the region
A century ago
Brazil was a very backward country, essentially an agricultural economy, with
coffee responding for almost 70 percent of total exports and more than 30
percent of State export receipts, with few industries and an income per head
that was a tenth of the American level, and five times less than the
Argentinean average revenue. Despite a frustrating record in terms of social
progress – due to a low quality education – the rates of economic growth for
the most of the 20th century, up to the 1980s, were really
impressive, sometimes at current Chinese levels, in the average of 4,5 percent
a year from the 1930s up to the external debt crisis of 1982. The military
regime (1964-1985), modernizing and technocratic, was a kind of Bismarckian
model of Statecraft combined with a Stalinist-like industrialization, favoring
the bourgeoisie, as the income concentration increased significantly during
that period. The two oil shocks and the external debt, together with a renewed and
strong Civilian opposition, closed the military interregnum and their will to
rule (probably forever).
After almost
two decades of negligible growth, reforms undertaken by the two Fernando
Henrique Cardoso’s administrations (1995-2002) prepared the country for a sustained
growth, which finally arrived after the Asian financial crises of the 1990s,
and coinciding with the high demand for primary products from China. Indeed,
the first Lula administration (2003-2006) and half of the second (prior to the
American recession) were characterized by satisfactory rates of growth, only to
be squandered by a disastrous economic performance by Lula’s successor, Dilma
Russeff; her first administration was a total failure and an economic disaster,
whit more inflation (the double of the official target), manipulation and devaluation
of the currency, low growth (despite of an expressive growth in consumption
credit and in affordable housing programs), and double deficits, both in domestic
accounts and external transactions.
In fact,
during the whole period starting in 2003, Brazil growth was inferior to the
average rate of Latin America, less than the world growth rates and three times
less than the more dynamic emerging countries. The reasons are to be located in
a very low savings rate, a mediocre investment rate, and an “OECD level” of
government receipts: taxation is as high as 36 percent of the GDP, meanwhile
the income per head is four or five times below OECD’s level. Brazilian State
imposes a very heavy fiscal charge over its citizens and private companies,
expends more than two fifths of the GDP, including a heavy service for the
domestic debt, and does not offer services or investment levels commensurate
with the revenue extraction it exerts against the very creators of riches.
Succeeding
the structural reforms of the 1990s, Lula’s years in charge saw no reform at
all; to the contrary, even if his administration has not reverted the many
privatizations accomplished by Cardoso, he conducted an overall growth of the
State, creating many new state companies, increasing the number of public
officials to new heights, accruing State expenditures above both the rates of
growth and the inflation, with very few productive investments. Also,
corruption levels went rampant, for instance in Petrobras, the state oil
company, almost destroyed by mismanagement, inflated purchases and foreign contracts
signed carelessly (or perhaps undertaken at shamefully inflated prices, and deliberately
for somber purposes).
Notwithstanding
the poor performance at domestic level, reception of Lula’s activism abroad was
synonymous of success, even if there was more transpiration (in terms of
propaganda) than inspiration. Foreign policy departed from the very cautious
postures adopted traditionally by Itamaraty – the Foreign ministry – and
embarked on a clear partisan policy, aiming to please the leftist and
anti-imperialist Worker’s Party and other socialist movements in Brazil.
Externally, Lula’s government adhered to, and also created its own, policies of
all kinds directed to “change the geopolitical relations” in the world – deemed
too hegemonic, unilateralist and imperialist – and to push for “a new trade geography
in the world”, both with an anti-hegemonic flavor and under the banner of
“South-South diplomacy”. Alliances with supposed “strategic partners” were
devised, first with India and South Africa – in the IBSA group –, soon
afterwards with the so-called group Bric, suggested by an investor economist as
the big emerging economies of China, Russia, India and Brazil – later to
politically include South Africa as well – but artificially promoted by Brazil
and Russia as a formal diplomatic group.
Considering
Brazilian diplomacy since 2003, it is important to stress that the modus operandi combined formal
procedures proper to Itamaraty and political goals and objectives intimately
associated with PT’s ideology, a typical leftist party guided by
anti-imperialistic instinct and obscure Cuban links. The three most important
diplomatic priorities of Lula’s administration were: to conquer a permanent
siege at the UN Security Council, to reinforce and to expand Mercosur in South
America, and to make commercial gains through a successful conclusion of the
Doha round of multilateral trade negotiations. Not a single one was reached
during his two mandates or during its “natural extension”, Dilma’s first presidency,
and none are ready to be accomplished during her second mandate, because of
overoptimistic and erroneous assumptions made at the start. All three
objectives were conceived and implemented on the basis of the referred
South-South diplomacy, and the alliance with the anti-hegemonic strategic
partners, such as China and Russia, the two authoritarian members of the Brics.
For different
motivations, but with the same consequences, these two countries never
sustained the objective of their two original and democratic companions in the
Bric, India and Brazil, to be accepted as new permanent members of the UNSC,
despite a worldwide campaign by Lula’s diplomacy to gain support in the
Southern hemisphere. As regards the third objective, having a successful
conclusion of the Doha round, most of the blame – besides reluctance by the
U.S. and EU with the agricultural agreement – fells also on some of other
strategic partners, namely India and Argentina, both opposed to industrial
tariffs reduction and India’s posture against agricultural liberalization. The Mercosur
project and South America integration are special cases in the agenda, which
deserve a more detailed examination.
Notwithstanding
a gradual recovery of the intra and extra-Mercosur trade, after the crises
affecting Brazil and Argentina between 1999 and 2002, the resumption of
economic growth in member countries was not enough to overcome the many
economic fragilities which still hinder the bloc. In fact, the promises of
trade liberalization made at various stages of the integration process were
never realized, and the customs union announced in 1995 was real only in paper.
Since the start of Lula’s and Kirchner’s administrations, in 2003, no
substantive advances were accomplished in the domain of commercial integration,
and, to the contrary, more restrictions – inwards and outwards – were
introduced at each successive challenge, either caused by external, or domestic
factors. The blame is to be equally divided between its two major members, and
their protectionist instincts, but, mostly, it is to be attributed to the unilateral
safeguards imposed by Argentina against imported products, including those from
Brazil, its most important partner up to recently (China is taking the first
posts everywhere). But Lula was totally compliant with Argentinean control of
importations, even cooperating with them, accepting self-imposed restrictions on
Brazilian exports, notwithstanding the fact that Argentina’s measures ran
against Mercosur’s and Gatt’s rules on the matter.
To compensate
for the lack of progress – in fact, a retrocession – in the chapter of
commercial integration, the two countries devised new institutions in non-trade
areas, especially in political and social sectors, either bilaterally or as multilateral
cooperation among member countries and with some neighbors in the region. Some
of the instruments were taught to incorporate civil society into the
integration process, for instance, trade unions and cultural organizations,
while others were directed to public institutions other than the Executive
power. Even if its inherent powers are at most theoretical, a Parliament of
Mercosur was created, with equal representation from each member country,
despite the huge differences among them. A Monetary Institution has been
suggested, notwithstanding the fact that no coordination of macroeconomic
policies existed at all, and that exchange policies and monetary and fiscal
goals are determined independently (and contradictorily) by each national
economic authority.
5.
Assessment and prospects: more of the same for Latin America?
Economic
studies emanating from independent research think tanks and from international
organizations – such as IMF and OECD – have reached a common agreement for most
of their predictions concerning major developed countries and emerging
economies: there will be a very slow recovery from the low growth in advanced
economies – with a more sustained path in the US than in Europe – together with
delayed reforms in many developing countries. Pending on some hidden bubbles in
the US and China, or even in Russia, there are still prospects for dynamic
trends in major emerging countries, such as India and China. Russia and Brazil,
together with some Latin American countries, did not profit from the bonanza of
the 2000s to improve their respective fiscal positions or to diversify their
exporting sector, which remained too concentrated on a small number of
commodities. Predictions for the remaining Brics countries, Brazil, Russia and
South Africa, are that they will continue to suffer from lack of adjustments during
the good years of commodities boom and will grow at very low levels, not
excluding recession in 2015.
According to
some reports, Latin America as a whole is to grow less than the world average
in the next few years, and the three big countries in South America –
Argentina, Brazil and Venezuela – are, in fact, going to have a negative growth
in 2015, and possibly in 2016 also; they respond for a large part of the
region’s GDP and trade. Forecasts for three South American countries, Chile,
Peru and Colombia, that, together with Mexico, in North America, form the
Pacific Alliance, are that they will have moderate but sustained growth in the
foreseeable future, due to their choice of a globalized economic strategy,
relying much more on the dynamic exchanges that take place in the Pacific rim
than in their intra-regional trade; in fact, the four decided to act together thinking
in their outward flows with other regions, not between each other.
The truth is
that political arrangements that were made for both Mercosur and Unasur are not
paying off, mostly due to the fact that they rely much more on managed or
administered trade than real free trade agreements. National regulatory
dispositions related to public works in infrastructure are incompatible with
each other, so very few integration projects are really being carried out in
the domains of transportation, energy or telecommunications, including due to
the fact that in some countries (the so-called “globalizers”) those sectors are
open to private, or foreign, investors, while the heavy hand and the control of
the State are still prevalent in many others (Bolivarians ahead). After reforms
undertaken in the 1980s, populist and pro-State political leaders
were elected in the late 1990s and 2000s, who turned back the clock of
modernizing efforts inspired in the Washington Consensus prescriptions. Many
political leaders in Latin America are looking with nostalgic feelings to the
1960s, not to the future.
This is one
of the reasons for the integration process and the economic opening started in
the 1980s to be held back from previous commitments of continuous trade
liberalization. In Mercosur, for instance, the customs union that was built out
of the free trade zone put in place during the transitional period (1991-1994),
and formally started in 1995, probably now covers less products and creates
less trade flows than it was the case in the beginning. According to some
observers, less than 10 per cent of imported items within Mercosur are done
under the rates established by the Common External Tariff. One other reason is
the huge Chinese penetration in many local markets in South America: some
countries, such as Brazil, has now China as their first trade partners, with
USA and European Union ranked in second or third places. Even in the case of
the largest reciprocal trade relationship in Mercosur and in South America,
that of Brazil-Argentina, the new linkages with the Asian giant are strongly impacting
the bloc and remodeling the commercial patterns inside and outside the
continent.
Mercosur,
according to the original Brazilian idea, was conceived as the center and the
hub of a larger free trade space in South America, and as a common platform for
trade negotiations at the hemispheric and global levels; but lack of progress
in those directions is holding back Mercosur as a serious partner for
multilateral bargaining in the WTO trade talks or for a successful conclusion
of an almost two decade long discussion with European Union for an association
and trade agreement. After the political decision to accept Venezuela in the
bloc, in 2012, and the possible association of two other “Bolivarian” countries
– Bolivia and Ecuador – with it, the possibility of having negotiating process
with European or Asian countries for trade agreements, or even at the
hemispheric level again, is less likely than ever. So, except for the four
member of the Pacific Alliance, the prospects are for a further diminution of
the share of those South American countries in the world trade flows. And, excepting
a sustained price level for their exported commodities, not only the volume and
diversification, but also the value of their respective external trade is
expected to shrink in the context of the whole international trade. Latin
America loses its share in favor of Asia Pacific.
Indeed, as we
have seen in the table of income levels in 1980 and in 2014, Chile and Colombia
are the two sole countries which advanced above of the average level of GDP per
capita; the fact that they could be included in a “globalizer” club, together
with Peru (which has sped up both its economic opening and growth rates in
recent years), is a good bet on which countries can be winners in the world
race for a full productive integration into the capitalist globalization. Observing
the remaining countries of the region, where protectionist and interventionist
practices are still in the economic policy menu, there is no surprise at all that
the Asian region, in general, performed well ahead Latin America in economic
growth and raise in income levels. No one is talking of true liberalism in one
or other region, but it is a fact that the State in Latin America was
historically used to keep the oligarchs in power, and after, during the
industrializing process, the mismanagement in fiscal, monetary and exchange
policies represented a clear difference compared with similar policies in the
Asian region, not mentioning the appalling scenario related to public
education, well behind acceptable levels of learning proficiency in Latin
America.
Brazil is a
case in point, in both economic policies and educational performance. In the
OECD’s Program of International Student Assessment – a comparative ranking of
middle level learning achievement in Language, Science and Mathematics – Brazil
and Argentina are amongst the worst achievers in the regular evaluations,
behind countries with inferior income levels. Also, the two, together with Venezuela,
have squandered previous attempts at economic stabilization, low inflation
rates and external accounts equilibrium, and have performed very poorly in
economic growth in recent years (and probably in the near future too). Brazil,
like the United States at global level, Germany in Europe, and China and Japan
in the Asian region, could be the engine for growth, integration, and economic
liberalization in the region; instead of that, Brazil is lowering growth
prospects in South America and for Latin American indicators. This is due to a
exceptionally bad management of its economy – both in macro and sectorial
policies – by the Worker’s Party apparatchiks, who are particularly inefficient
in combining economic reforms and socially sustainable distribution policies. They
have turned Brazil back to the precedent era of high inflation, low growth, and
double deficits (budget and external accounts). The whole set of distribution
mechanisms artificially created during the last decade (subsidies for the poor,
for popular housing, but also for the rich, through low interests in borrowing
from National Development Bank) are being reduced due to a fiscal deficit
higher that 7% of the GDP, the direct consequence of high expenditures in the
last three years, to support the reelection of the current president. In fact,
Brazil is going back more than two decades of previous stabilization programs
and serious efforts at redressing the national accounts.
The recurrence
of fiscal deficits, high inflation, protectionism, external disequilibria – is
nothing new in Latin America, but the real news is that the continent, for the
first time, is fragmented between those countries that have choose to integrate
themselves into the world economy, and the other half that preferred to rely on
old economic practices and on the same populist measures of the past. The test
of reality is already being applied to the discomfort of the later, and Brazil
is unhappily among them. Worse than that: current Worker’s Party government is betraying
the best diplomatic traditions of Brazil, as almost everyone in and out of the
region is horrified by the terrible violations against democracy and human
rights that are being committed in Venezuela, in Cuba, and in other
authoritarian countries, in the region and elsewhere, to which the Worker’s Party
government choose to give its political support. Current times, decidedly, are
not the best for Brazil, or for the region, and we’ll have to wait till
political education, and the mobilization of civil society, are able to
redress, by political means, the retrocession in governance and morals that are
nowadays in place.
Paulo Roberto de Almeida
[Anápolis, Brazil, June 1st, 2015,
14 p.
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