Brazil Deserves Better Than Jair Bolsonaro - Mac Margolis (Bloomberg)

Politics & Policy

Brazil Deserves Better Than Jair Bolsonaro

The angry resignation of Justice Minister Sergio Moro promises to mire the country deeper in political crisis and economic misery.

By 

Mac Margolis

Bloomberg, 25 de abril de 2020 10:00 BRT

https://www.bloomberg.com/opinion/articles/2020-04-25/brazil-deserves-better-than-jair-bolsonaro?srnd=opinion&sref=qw10sJBn

When a congressional back-bencher with fringe right-wing ideas took office last year, many Brazilians held their breath. Some hoped and prayed that Jair Bolsonaro might rise to the occasion, moderate his rhetoric and compensate for his lack of executive experience by delegating to a first-rate cabinet. Leave it to the adults in the room — Economy Minister Paulo Guedes, Vice President Hamilton Mourao, and Justice Minister Sergio Moro — and all would turn out well. We know now that was a fever dream. Moro’s acrimonious resignation on Friday, after accusing Bolsonaro of meddling in the justice system, is only the latest symptom.

Less than a year and half on, the former army captain has clearly neither risen to the task nor delegated to the able. Instead Bolsonaro governs by trial and error, second-guessing his ministers in favor of a bilious claque of kin and confidants. The result: Brazil’s presidency has shrunk even as the country’s challenges grow larger than ever.

In a way, Moro’s exit was a collision foretold. If Guedes was Bolsonaro’s “one-stop shop” for righting Latin America’s biggest market, he has gone conspicuously silent as the coronavirus pandemic roils the economy: When a government panel announced a national rescue plan, he was nowhere to be found. After Health Minister Luiz Henrique Mandetta drew plaudits for choosing science over faith-based policies to confront the coronavirus pandemic, Bolsonaro fired him. When uncontrolled fires in the Amazon brought global criticism, Bolsonaro sacked the respected head of the space agency monitoring the rain forest and blamed the fires on partisan saboteurs.

After presiding as a federal judge over the storied Carwash anti-corruption trials, Moro was hired as Bolsonaro’s Mr. Clean in a government pledged to bury the “old politics” of cronyism and payola. To hear it from Bolsonaro, Moro left Brasilia a self-centered liar.

True, Moro is no saint. His integrity took a beating last year, when hacked text messages leaked to the press showed that he had overreached, apparently coaching prosecutors in the storied Carwash case he presided over. And of course, ministers in any democracy serve at the chief executive’s pleasure — even super-ministers may fall.

Yet Moro’s parting shot against Bolsonaro had the whiff of an unfinished row, not a rout. “I am always at the country’s disposal,” Moro concluded in his provocative exit message. Despite his questionable Carwash actions, Moro was by far Bolsonaro’s most popular minister. Judging by the markets, he will be missed. Stock prices slumped at one point by nearly 10% on Friday and the real tanked against the dollar, forcing the central bank to intervene four times in the foreign exchange market.

Among his motives for resigning, Moro cited Bolsonaro’s alleged attempts to interfere in criminal investigations, pressure cops and stack the police with friends. Tellingly, Bolsonaro’s reshuffling of the federal police comes as investigators close in on his eldest son Flavio for allegedly commanding a kickback scheme and second eldest son Carlos for allegedly ginning up fake news against members of the Supreme Court. The federal police chief who was sacked against Moro’s will was “tired of being harassed” by Bolsonaro to step down, Moro later tweeted.

Bolsonaro denied any wrongdoing. In a long, rambling statement on Friday, he defended his honor “as a man, a soldier and a Christian.” He went on to rebut charges that he’d meddled in police work, although he admitted to demanding government intel on some pending investigations and to soliciting, “almost imploring,” the federal police to probe certain cases involving his family, including the man who stabbed him on the campaign trail in 2018 and was later found to be mentally impaired.  

Despite Bolsonaro’s denials, Moro last night released text messages showing that he had recommended swapping out several federal police investigators who were probing wrongdoing by several legislators loyal to his government. If the charges hold up in congress, the only court where sitting politicians may be judged, they could be grist for impeachment. Brazil has been there before. Two of Brazil’s last four popularly elected presidents were removed by impeachment, the last one less than four years ago, with a push from then federal congressman Bolsonaro.

Tellingly, Bolsonaro is bleeding allies and credibility. After an internal row, he abandoned the political party he rode to office 16 months ago, and his new party has yet to pass the eligibility bar by electoral authorities. With no solid legislative base, he has lost control of the congressional agenda. His response? Turn adversaries into enemies, starting with influential congressional speaker Rodrigo Maia, and wave on the loyal Bolsonaristas who clamor for closing the congress and the Supreme Court.

Moro’s departure amid an unprecedented health emergency and the worst economic slump since the Great Depression drops a full-blown political crisis onto Brazil’s miseries. Adding yet another long and surely acrimonious impeachment process will do the country little good.

A statesman in such a corner might see as much and spare his compatriots the pain. Regrettably, Bolsonaro likes a cage fight. Bolsonaro “is digging his own grave,” former President Fernando Henrique Cardoso tweeted. “Better he renounces than be renounced.”

Brazil deserves better.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Mac Margolis at mmargolis14@bloomberg.net

To contact the editor responsible for this story:
James Gibney at jgibney5@bloomberg.net

Argentina: a um passo da dolarização? - Mac Margolis (Bloomberg)

Economics

Could Dollarization Be Argentina’s Salvation?

After eight defaults, it needs a currency that it can’t print, game or otherwise defile.

By 

Mac Margolis

Bloomberg, October 30, 2019, 9:30 AM EDT

In dollars they trust. Photographer: Marcos Brindicci/Getty Images South America

Peronist leader Alberto Fernandez and his deputy, former president Cristina Fernandez de Kirchner, won a commanding victory over center-right incumbent Mauricio Macri in Sunday’s poll. But for a nation that has defaulted eight times on its debt and spent a third of the last seven decades in recession, the path forward is unclear.

Voters clearly said no to another mandate for Macri, who promised foundational reforms through managerial nous, and delivered sacrifice and half-measures instead. Nor will Argentinians or the financial markets, upon whose good graces this nation of 45 million depends, abide a return to the interventionism that marred Fernandez de Kirchner’s 2007-2015 government – one reason perhaps that she took second chair to her more conciliatory namesake. (They are unrelated.)

If there is any consensus, it’s that more of the same will not do. But here is where the conversation could get interesting. To a growing number of respected economists, the only path to a fresh start for Argentina involves embracing the U.S. dollar.

The details of dollarization are vexing: Who will be the lender of last resort? How to manage the vagaries of trade and the business cycle when you can’t set interest rates or calibrate the exchange rate? Yet the argument for the greenback is straightforward.  When a nation has lost its grip, its currency tumbles, credit risk spikes and bonds fall. If conventional monetary and fiscal policy fails to stabilize the economy, the crisis returns again and again. Better to ditch the iffy peso for the greenback, that reliable Latin American mattress-stuffer, which native authorities cannot print, game or otherwise defile.

Yes, dollarization is the monetary nuclear option. That may be why by 2002 only some 35 countries worldwide, most of them small, had officially given up their own currencies for the dollar. Ecuador is the largest of the three Latin American dollarizers (alongside El Salvador and Panama) and its gross domestic product is just one-fifth that of Argentina.

The reasons for reticence are understandable. Latin Americans still regard the national currency as a badge of sovereignty and independence. Giving up one’s coin is seen as bending the knee to a foreign power. So much the worse if that overlord is the United States. Increasingly, however, Argentinians seem willing to shed that inhibition. Even with its own currency, Argentina has been in and out of economic emergency for decades. Johns Hopkins University professor of applied economics Steve Hanke recently tallied 12 separate crises leading to the collapse of the Argentine peso since 1876. Tellingly, most of them dated since 1935, the year the Central Bank of the Republic of Argentina was founded.

Serial bouts of hyperinflation, overspending and foreign indebtedness have taken their toll. Each crisis has caused the peso (one of this year’s worst-performingcurrencies) to collapse, destroyed trust in policymakers (who’ve now returned the favor by tightening capital controls), and made the country a perennial pariah in the credit markets (Argentine bonds slumped again on Monday). Tellingly, lenders took heart in the narrower-than-expected Peronist victory, a sign perhaps that Argentinians want stability, not adventure.

Dollarization has its discontents. Not everyone agrees that the best way to restore economic integrity and trustworthiness is to take away policy command and control. Argentinians experimented with dollarization in the 1990s through a policy called convertibility: Each peso was legally backed by a dollar in reserves at a fixed one-to-one exchange. It worked for a while, but there was leakage. Provinces found loopholes to federally mandated austerity, fiscal profligacy continued and even with the dollar anchor, the central bank kept tinkering, therefore undermining convertibility and setting up the country for its seventh debt default since 1827.

Populist temptations can also wreak economic havoc, even under the dollar straitjacket.  Look no further than Ecuador. Squeezed by rising U.S. interest rates, spendthrift former President Rafael Correa found a workaround to the dollar by raiding hard currency reserves and leaning on the Central Bank to jack up government lending for wages and social programs. The result was a fiscal sinkhole that entrapped Correa’s successor Lenin Moreno in penury ever since and nearly unseated him last month when his austerity measures provoked a backlash.

And yet at some point, governments exhaust their quota of mistakes. Alberto Ramos of Goldman Sachs is no fan of dollarization, but he allows that dire circumstances call for extreme measures. “If you continue to go from crisis to crisis, you have to let go and dollarize,” he told me. By now, Argentina may well have erased the ifs.

Discarding dollarization because it ties a nation’s hands and deprives a government of instruments to manage exchange rates and business cycles sounds sensible, but ultimately rests on a conceit that ignores events on the ground in Argentina. Economist Nicolas Cachanosky, of the Metropolitan State University of Denver, calls this the nirvana fallacy.  “Argentine economists tend to confuse the possible with the probable. They imagine a well-functioning central bank that carefully considers and implements policy. But experience suggests something far less desirable will result,” Cachanosky recently wrote.

What’s not in dispute is that Argentina long ago breached the threshold of economic normalcy. “Argentina lacks credit in the broadest sense; it is a zero-trust country,” writes Johns Hopkins University economist Jorge C. Avila, who along with Cachanosky is one of the few Argentine enthusiasts of dollarization.

In a study earlier this year Avila argued that dollarizing could work as long as Argentina opens its air-gapped economy (exports and imports amount to only about 30% of gross domestic product). “Dollarizing with financial integration and free-trade agreements with superpowers will bring a degree of monetary and financial stability not seen by this country in a century,” he wrote.

That may sound overly optimistic. Indeed, going all the way and scuttling a national currency is a dire recourse, and likely unthinkable for the new Peronist management, whose standard bearers spent much of the campaign blaming Macri for turning Argentina into a vassal of the International Monetary Fund. “Dollarization is a one-way street, you don’t go back,” said Monica de Bolle, a senior fellow at the Peterson Institute for International Economics.

As it happens, de Bolle added, Argentinians are way ahead of their political establishment. Each crisis has led them to dump pesos for the greenback, the only medium of exchange that counts for real estateand other big-ticket transactions. Argentinians have squirreled away up to $150 billion in cash and hold an estimated $500 billion in assets abroad. “Argentinians think in dollars, plan in dollars, dream in dollars and have nightmares in dollars,” said Ramos.

What the Peronists need to say is, if Argentina doesn’t dollarize, then what? The options are all but spent.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Mac Margolis at mmargolis14@bloomberg.net

To contact the editor responsible for this story:
James Gibney at jgibney5@bloomberg.net

Mac Margolis is a Bloomberg Opinion columnist covering Latin and South America. He was a reporter for Newsweek and is the author of “The Last New World: The Conquest of the Amazon Frontier.”

Brazil’s Supreme Court Is Out of Control - Mac Margolis (Bloomberg)

Brazil’s Supreme Court Is Out of Control

The economy is hurt by celebrity judges and an overtaxed court that can’t issue durable rulings.

Mac Margolis

Bloomberg, 22/10.2019

Supporters of Brazil’s former President Luiz Inacio Lula da Silva.

Photographer: Franklin De Freitas/AFP/Getty Images

LISTEN TO ARTICLE

No one denies that Latin America economies are hurting, with regional growth predicted to reach barely half the global average next year. And there’s little quarrel about one big reason for the slump. The absence of clear rules and a reliable legal system discourages investment and effective business management.

So why is Brazil’s highest court revising a keystone of the country’s penal code, a move that could free thousands of convicted criminals, trigger partisan discord and throw a cloud over the anticorruption drive that has rid public office of freebooters?

The question before Brazil’s Supreme Court sounds prosaic: When should a convicted criminal go to prison? Current law says the court may jail any defendant whose conviction is upheld on appeal. It is a reasonable standard for a land where wealthy miscreants deploy clever lawyers to blitz the courts with writs and motions in an effort to keep out of prison indefinitely. 

However, that law offends legal formalists who argue that no one should be incarcerated until every possible recourse has been exhausted. They cite the Brazilian constitution, which lawmakers packed with well-intentioned, if sometimes impractical, safeguards after a long period of military fiat.

It might sound like legal hair-splitting were it not for one looming presence: Luiz Inacio Lula da Silva, the former Brazilian president who was convicted twice, in 2017 and on appeal last year, for taking bribes and sentenced to 12 years in jail. He was the biggest catch in the storied Operation Carwash corruption probe of elected officials accused of looting public companies.

Lula’s devotees, who are legion, never swallowed that verdict, claiming he was railroaded by a partisan hanging judge. (Hacked text messages between Carwash prosecutors and presiding Judge Sergio Moro seemed to provide evidence that Moro may have played fast and loose with some rules.) One way or another, Lula’s loyalists say, he ought to go free. But the worst way to deal with that dispute is for the nation’s top court to change the legal ground rules for everyone.

Laws ought not be set in stone, of course, any more than they should be used as weather vanes. Brazil’s Supreme Court has changed its position on the same jail-on-second-conviction rule twice in the last decade. If a majority of the judges flip again, which is likely, Lula may be sent home for now (he still faces trial in seven other cases) -- along with 4,895 other convicted criminals.

Whatever the legal merits, such inconstancy is troubling for a court of last resort in a country where much of the political class and its corporate enablers were caught raiding public coffers for profit and political glory.

The Supreme Court’s tentacles reach in many directions: It serves as a constitutional court, a final court of appeals and a trial court for elected officials with immunity in common courts. Thanks to the minutely detailed and expansive Brazilian constitution, almost any matter, from domestic violence to graft, can land on its docket.

Last year, the court received more than 100,000 cases. The only way to deal with such an impossible mandate is to give discretion to each of the court’s 11 justices. Some 95% of cases are typically decided by a single judge (frequently by copying and pasting prior rulings). Rulings by 11 different judges assure widely divergent verdicts.

”Divergence leads to the inability to establish strong jurisprudence, the lack of which will only lead to more cases,” says Matthew Taylor, an American University professor who has studied the Brazilian courts. “It’s a vicious circle.” 

The decision on when to send convicts to prison won’t directly affect business and investment. The mercurial rule at the top of the judiciary will. Of the many obstacles Brazilian companies face, the constantly shifting rules and laws that beget more laws are among the most harrowing. Brazil issued a total of 5.7 million new tax norms in 2017, compared with 3.3 million in 2003, according to the Brazilian Tax Planning Institute.

No wonder Brazilian companies spend 1,958 hours preparing taxes, more than in any other nation (the world average is 237 hours). “Who’s to say that the Supreme Court won’t change tax laws a year or two from now?” said Mailson da Nobrega, a former Brazilian finance minister.

Yet judicial overreach appears to suit the current bench, whose headline decisions and oratory are streamed over the web, turning judges into “politicians in robes,” says University of Rio de Janeiro political analyst Christian Edward Lynch.

Brazilians don’t need celebrities in robes or a court so overtaxed it can’t render durable rulings. They need judicial stability, circumspection and a bench that interprets, instead of reinvents, the nation’s highest laws. One way to achieve that would be to turn the Supreme Court into a constitutional tribunal, leaving appeals, criminal cases and political trials to lower courts. “Brazil needs to transform the Supreme Court into an invisible bench, where judges rule but don’t pontificate,” Lynch said.

Brazilian lawmakers, constitutional jurists and society will have to make that call, most likely through a major reform of the judicial system. That’s one verdict Brazil’s overreaching judges aren’t qualified to make. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Mac Margolis at mmargolis14@bloomberg.net

To contact the editor responsible for this story:
Katy Roberts at kroberts29@bloomberg.net

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Mac Margolis sobre a visita presidencial aos EUA (ops, ao Trump) - Bloomberg

Trump and Bolsonaro Put Their Bromance to Its First Test

The Western Hemisphere’s disruptors-in-chief meet in Washington this week. Is a new U.S.-Brazil entente in the offing?

Mac Margolis

Washington rolls out the welcome wagon.

Photographer: Eric Baradat/AFP/Getty Images

Brazilian President Jair Bolsonaro doesn’t like his look. That’s a big part of why he’s substituting the ambassadors to Washington and 14 other A-list foreign posts, Brazil’s biggest foreign-service makeover in recent memory. The mission: “Not to present the government and president as if they were racist and homophobic,” Bolsonaro told journalists in Brasilia last week, on the eve of his first bilateral visit to the United States and a meeting with his campaign idol, President Donald Trump.

If there’s one place Bolsonaro doesn’t have to explain himself, it’s in Washington, where civility, institutional backstops and the rules of democratic decorum are being cut down faster than the Amazon. What’s less clear is how the Western Hemisphere’s ranking disruptors-in-chief will manage their announced “new beginning,” and whether Latin America’s economy of record can put the feeling to good use at home and beyond.

The renewed friendship itself is important. Brazil and the U.S. have not always seen the world the same way. “For most of the last two decades, good relations with the U.S. were not a priority,” said Jose Pio Borges, president of the Brazilian Center for International Relations, in reference to 2003 to 2016, when Brazil was ruled by the soft left and still gringo-allergic Workers’ Party. “We had no conflicts, but saw no major advances.”

In that context, the agenda for Bolsonaro’s trip looks a bit like diplomacy as usual. The two governments are scheduled to sign agreements and protocols on technology safeguards for a Brazilian satellite launching station, bilateral security, two-way trade, and a new energy forum including investment in nuclear power.

Brazil wants Washington’s blessings to become a major non-Nato ally—with enhanced access to  U.S. defense technology—and more ambitiously to join the Organization for Economic Cooperation and Development, the pact of the most advanced economies. As a good will gesture, Brazil is expected to drop visa requirement for U.S. visitors, though the U.S. is unlikely to return the favor.

But Brazil’s broader expectations couldn’t be grander. Bolsonaro emulated Trump’s sawed-off populism, promising to make “Brazil great again” and retrieve politics from the swamp of socialism. Foreign Minister Ernesto Araujo, a career diplomat who lately has veered sharply to the right, went further, declaring Trump the Western world’s “Hail Mary.” Arriving in Washington on Sunday, Bolsonaro tweeted: "For the first time in a while a pro-American Brazilian President arrives in D.C."

Far more than bilateral bonhomie is in play, however. Analysts caution that as the junior partner in the alliance, Brazil is vulnerable to capture by an imported agenda.  “Automatic alliance with any world power can be problematic. Close relations shouldn’t be capitulation,” warned Roberto Abdenur, a former Brazilian ambassador to the U.S., Germany and China.

Theoretically, Brazil’s seasoned diplomats and technocrats have the policy acumen and global mileage to negotiate with testy powers and overweight allies. Brazil boasts its own heft in the World Trade Organization (presided over by a Brazilian) and is a respected voice in the Inter-American Development Bank, the United Nations and the G20. And the soft power pull of its music, food, rainforest and futebol’s ballet on grass have endeared the country to foreigners. 

Unfortunately, the hard-right political makeover in Brasilia has inspired Araujo to clear the house of graybeards while promoting their subordinates: “colonels giving orders to generals,” as disconcerted diplomats put it. That’s a prerogative of new management—Araujo has never headed an embassy—but the upheaval has left Itamaraty, as the foreign ministry is known, short of its most seasoned envoys and bereft of institutional memory.

“The minister has grown authoritarian and isolated,” senior diplomat Paulo Roberto de Almeida told me. “He shuts himself in his office and hardly consults  the ministry’s divisions anymore,” he said.  Almeida should know: He was recently removed from his post as president of the ministry’s International Relations Research Institute after inviting independent debate on foreign policy through his personal blog.

Among those reportedly snubbed under the new command was the ministry’s most knowledgeable Venezuela hand, “a person who’s read all the cables and follows all the developments in Caracas,” one serving diplomat told me. That’s an inexplicable oversight at a time when Brazil is trying to lead the regional conversation about rescuing Venezuela from authoritarian collapse.

Squandering experience is bad enough. Itamaraty’s ideological turmoil threatens to make it worse. In an hour-and-twenty minute master class to aspiring diplomats in Brasilia last week, Araujo said he’d had enough of the encomiums to “third worldism, anti-Americanism and anti-Westernism” and bets on errant “partners unable to help our development.” Alongside his leader, Araujo has bet on rapprochement with Washington as a kind of existential redemption.

And forget China: As far as Araujo is concerned, Brazil’s finest moment was when the U.S. led the way, not just in international trade but setting the world’s moral and political compass. Brazil’s way forward? Combine “freedom and greatness” to reclaim the nation’s rightful place in the march of “Christian” civilization.

That’s stirring stuff for the pulpit or the lectern, but makes for dicey foreign policy. The caveat goes double for Brazil, a nation that ought to spread its alliances, not funnel them, much less fix its fortunes on the humors of a mercurial populist in Washington. “It’s not a strategy. It’s a messianic message,” said O Estado de Sao Paulo in a lead editorial last week.

Some analysts note that Bolsonaro’s politics are a work in progress and that the campaign passions and articles of faith will fade as the grind of governing sets in. Cooler heads in Brasilia, especially the retired generals in Bolsonaro’s kitchen cabinet, are credited with muting the Washington-inspired rhetoric about invading Venezuela, moving Brazil’s embassy in Israel to Jerusalem, quitting the Paris Agreement on climate change, and falling in behind Trump in his trade quarrel with China. “I see hopeful signs in the moderating influence of the military ministers and especially in Vice President Hamilton Mourao,” said Abdenur.

But Bolsonaro still surrounds himself with incendiaries like Araujo, self-styled adviser and freelance philosopher Olavo de Carvalho, and Bolsonaro’s youngest son Eduardo, who fancies himself a parallel foreign minister. Consider the inclusion of disgraced former Trump strategist Stephen Bannon on the guest list for Bolsonaro’s welcome dinner at the Brazilian embassy. “It’s a mistake to think that military cabinet members have won the upper hand and created a cordon sanitaire for policy initiatives,” said a well-placed diplomatic source.

The tough talk “is part of a shared worldview that got Bolsonaro elected and is also driving foreign policy,” said the diplomat. “I don’t see him just letting this go.” This week’s visit is likely to bear out that proposition.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Mac Margolis at mmargolis14@bloomberg.net

To contact the editor responsible for this story:
James Gibney at jgibney5@bloomberg.net

Before it's here, it's on the Bloomberg Terminal.

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Mac Margolis is a Bloomberg Opinion columnist covering Latin and South America. He was a reporter for Newsweek and is the author of “The Last New World: The Conquest of the Amazon Frontier.”

Venezuela fora do Mercosul (finalmente) - Mac Margolis (Bloomberg)

https://www.bloomberg.com/view/articles/2016-12-09/mercosur-turns-its-back-on-a-diminished-venezuela

LATIN AMERICA

Mercosur Turns Its Back on a Diminished Venezuela

13

DEC 9, 2016 10:30 AM EDT

By

Mac Margolis

When Hugo Chavez took office in Venezuela in 1999, he promised his compatriots many wonders, from a hemispheric “Bolivarian” alliance against gringo imperialism to 21st-century socialism. Free trade was not part of the deal. So it couldn’t have come as a total shock when on Dec. 2, four South American nations ruled to suspend Venezuela from the continental trade compact to which it never ought to have been admitted.

And yet, for the keepers of the Bolivarian Republic, the ouster from Mercosur might have been a diplomatic outrage. Venezuelan President Nicolas Maduro, who succeeded Chavez in 2013, called the move a “coup”; Foreign Minister Delcy Rodriguez denounced it as “an illegal action” and vowed to appeal. Assorted sympathizers and fringe militants as far away as Uruguay and Paraguay joined the chorus.

What’s at stake isn’t the future of regional commerce. Venezuela’s economy is such a shambles -- merchants have taken to weighing currency instead of counting it -- that trade in any conventional sense of the word ceased to matter long ago. But the choler in Caracas and the initiative by Venezuela’s once-accommodating neighbors said a good deal about the state of play in Latin American relations, where over a decade of diffidence and indulgence before the region’s stumbling autocracy has given way to umbrage and confrontation.

Sure, Chavez, had long pushed for a seat in the region’s signature commercial union, but less to join the compact than to subvert it. As early as 2007, he spoke of trying to “decontaminate” the block of its “neoliberal” bent. Instead, he saw Mercosur membership as a credential to raise Venezuela’s standing in the Americas even as his government eroded democratic rights, jailed opponents, and stunted economic liberty at home. Such behavior ran counter to Mercosur’s charter, which by the Ushuaia Protocol restricted membership to countries with “fully functioning democratic institutions,” and called for sanctions in case of a breakdown of democracy.

Clearly, Venezuela was an outlier. And yet, because criticizing an allied nation was long an unstated taboo in Latin America -- and practically a code of honor during the left’s governing heyday over the last decade -- neither Chavez nor Maduro needed to worry about diplomatic blowback, much less the migraine-inducing fine print of trade treaties. Four years after its backdoor induction to the trade bloc -- a legally questionable maneuver that badly roiled hemispheric diplomacy -- Venezuela still hadn’t bothered to adhere to adhere to Mercosur’s basic precepts, including the founding Treaty of Asuncion and the common external tariff. “Venezuela never should have been allowed to join,” said Brazilian diplomat Paulo Roberto de Almeida, who heads the International Relations Research Institute.

That dereliction was serious enough to exclude Venezuela from Mercosur’s negotiations to strike a trade agreement with the European Union, but drew little more than a shrug from the trade group’s controlling partners. The waiver was not a show of Latin bonhomie. Under former President Luiz Inacio Lula da Silva, Brazil nursed global ambitions, and promoting national champions abroad was part of the game. Flush with oil money, Venezuela was a plum client for contractors like the Odebrecht Group, which took on an estimated $25 billion in sometimes dubious public works with soft loans from Brazil’s national development bank.

Now all that has changed. As Venezuela’s economy tanked, unpaid debts (totaling some $2 billion in 2014) to Brazilian contractors piled up. Tolerance also faded as leftists leaders across the hemisphere lost traction, including in Mercosur. Argentina, Brazil and Paraguay are run by free market centrists, who quickly unfriended the Maduro regime. “The mess in Venezuela has hurt Brazil’s own international reputation especially,” said Oliver Stuenkel, a scholar of international relations at the Getulio Vargas Foundation. “Brazil has not fulfilled its role as a regional leader.” They were backed by Luis Almagro, the outspoken head of the Organization of American States, who in a break with that body’s anodyne diplomacy threatened to invoke the compact’s democracy charter against Venezuela’s excesses.

How much the hardening of Latin attitudes will sway the Maduro government is debatable. Street protests, pressure by the opposition-led legislature, censure by the O.A.S, appeals by Pope Francis -- so far nothing has deterred the bus driver-turned-president from his economic collision course or trashing what’s left of Venezuelan democracy. Ousting Venezuela from Mercosur may have been a symbolic gesture, but at least that’s one credential that Latin America’s outlier government no longer gets to wave.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Mac Margolis at mmargolis14@bloomberg.net

To contact the editor responsible for this story:
James Gibney at jgibney5@bloomberg.net