Latin America: Total Chaos?

By Carlos Malamud*

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South American Presidents waving to the cameras in Santiago, Chile / Flickr / Creative Commons

Democracy and democratic values are in crisis throughout South and Central America, but the causes – and solutions – vary across the region, with rays of hope that at least some countries will find their way forward. The Bolivian elections, plagued by suspicions of fraud, reflect some of the problems that affect all of Latin America. The previously unbeaten President Evo Morales, in government since 2006, has now shown his limits and, even if his election is confirmed, will govern without the parliamentary majorities he enjoyed in the past.

  • Latin America witnessed violent protests almost simultaneously in Ecuador and Chile; Mexico blinked during a confrontation with the son of narcotics kingpin Chapo Guzmán; the Congress was dissolved in Peru; an ex-President in the Dominican Republic denounced as fraudulent the primary election he lost and joined another party to be its candidate; and a massive exodus continued pouring out of Venezuela, whose crisis is terminal but without an expiration date.
  • The Argentine and Uruguayan elections on October 27 marked the end of a three-year cycle of elections during which 14 countries voted to elect or re-elect their presidents. Speculation was originally that a swing to the right would counteract the Bolivarianism of the previous swing to the left. That shift never happened. In its place, a more heterogeneous and divided Latin America emerged, reflected in the outcome of the Argentine and Uruguayan elections, and in the not-insignificant fact that Mexico is governed by Andrés Manuel López Obrador while Brazil, the other regional power, has Jair Bolsonaro.

The causes of this wave of divisiveness are the subject of different theories. Many observers speak of a Castro-Chavista conspiracy, orchestrated by Venezuelan President Nicolás Maduro and the leftist São Paulo Forum. Others think it’s a popular reaction to the drastic adjustment programs of the IMF. Yet others argue about a contagion factor and the impact of social networks, which enable real-time communication and the transfer of vivid images of events. Nonetheless, any theory that tries to harness all of these theories will be flawed because each national reality is responding to different logic and dynamics.

  • All of the countries of the region are experiencing inequality, poverty, corruption, violence and narco-trafficking, unhappiness with democracy and its institutions, rejection of politicians, and the impact of the “new politics” of social media and fake news. But they are not present to the same proportions.
  • Neoliberal, Bolivarian, and populist governments are all suffering from rebellions. The Chilean protests over transportation fees under neoliberal President Piñera were preceded by protests in Brazil in 2013 under progressive President Dilma Rousseff. If Piñera resorts to military force to stop the protests, Nicaraguan President Daniel Ortega did something similar in 2018, killing more than 300. The IMF might have been behind the reduction of fuel subsidies in Ecuador, but it had no role in Chile. While elections went as normal in Argentina and Uruguay, in Bolivia, like in Venezuela, the allegations of fraud have been constant.

The solutions to each country’s challenges will have to be as different as their causes. While one country needs deeper economic adjustment, another needs to fix its political institutions. Each is going to have to find its way through the crises. Latin America will find little solace, moreover, in the fact that this high level of conflict is not exclusive to its region. From Hong Kong to Cataluña, or in Libya and Lebanon, similar challenges are disrupting national life.

  • Amid the many indications that representative or liberal democracy is under direct attack – that we may be facing the end of an era with potentially dire implications – some positive notes are visible in Latin America. In addition to the orderly contests in Argentina and Uruguay, the local and regional elections in Colombia in late October were an effective exercise in democracy – won by the center and lost by the extremes. Uribismo on the right and Gustavo Petro on the left were the big losers. The emerging symbol was Claudia López, the first woman elected mayor of Bogotá, who is also a lesbian, environmentalist, and leader against corruption. The path ahead is certainly not going to be easy for Latin America, but there is evidence that, with a big dose of tolerance and respect for each other’s reality, Latin Americans can do a lot better.

November 5, 2019

* Carlos Malamud is Senior Analyst for Latin America at the Elcano Royal Institute and Professor of Latin American History at the Universidad Nacional de Educación a Distancia (UNED), Madrid. A version of this article originally was published as Turbulencias latinoamericanas in El Clarín of Buenos Aires.

 

U.S.- Latin America: Policy Shifts Ahead?

By Fulton Armstrong

Former White House National Security Adviser John Bolton speaks to reporters on events occurring in Venezuela Tuesday, April 30, 2019, outside the West Wing entrance of the White House.

Former National Security Advisor John Bolton speaks to reporters on Venezuela in April 2019/ Tia Dufour/ White House/ Wikimedia Commons

The sudden departure of President Trump’s outspoken national security advisor, John Bolton, is unlikely to result in changes in U.S. policy objectives in Latin America but could lead to the same sort of swings in tactics – harder or softer – that characterize other U.S. policies around the world. The continued weakness of the State Department’s input, aggravated by erratic staffing in its Latin America offices, further suggests that it will not play a balancing role.

Trump and Bolton’s statements over their 17 months together indicated no disagreement on objectives and tactics in Latin America, including immigration, close relations with Brazilian President Bolsonaro, efforts to rescue the Argentine economy, and Venezuela. They had identical positions on the waves of sanctions against Venezuela, U.S. commitment to remove President Nicolás Maduro, and unstinting support for National Assembly President Juan Guaidó’s claim to the Presidency, including backing Guaidó’s flopped coup in April. They both also explicitly linked taking down Maduro with achieving regime change in Cuba.

  • Trump and U.S. Senator Marco Rubio, widely seen as his top referent on Latin America and related political matters, are trying to signal that after Bolton’s departure the Administration is going to turn up the heat on Venezuela and Cuba. In apparently coordinated tweets between them, Trump said, “In fact, my views on Venezuela, and especially Cuba, were far stronger than those of John Bolton. He was holding me back!” This complements rumors that Trump has been frustrated that Bolton’s strategy in Venezuela, particularly the fact that Maduro supporters had tricked him into false confidence in Guaidó’s failed coup, has not removed Maduro from office. (It is unclear if one of his concerns is that U.S. sanctions are worsening the refugee flow challenging neighboring countries.)

Most Washington-based observers believe, however, that Latin America is the least important of the five issues that, according to press, caused friction between Trump and Bolton. The President’s personal involvement has been much greater with North Korean leader Kim Jong Un, in efforts to achieve regime change in Iran, in talks with the Taliban for withdrawal of U.S. troops from Afghanistan, and in maintaining good relations with Moscow despite the complex situation in Ukraine.

  • Trump has appeared to lack deep interest in Latin America policy and sees it as primarily a domestic political tool for consolidating his base – among anti-Maduro and anti-Cuba voters in Florida, an important state in his re-election calculus, and among supporters for his wall on the Mexico border and other anti-migration measures. Long ago he essentially handed the Venezuela and Cuba issues over to Senator Rubio, and the National Security Council brought a Rubio ally, lobbyist, and blogger, Mauricio Claver-Carone, to the White House to work the issue. They appointed Elliot Abrams, despite baggage from the Iran-Contra era and the Bush-Cheney Administration, to handle diplomatic operations on Venezuela for them.
  • By all appearances, Secretary of State Michael Pompeo has subordinated his own Latin America team to the White House operators, essentially stifling a traditionally important voice at the policy table. When Assistant Secretary Kimberly Breier resigned last month, only nine months after being confirmed by the U.S. Senate, she said it was to spend more time with her family, but her bureau’s marginalization left questions about her policy impact. Her acting successor, veteran State Department lawyer Michael Kozak, who has spent much of the last 10 years managing “democracy promotion” programs in Latin America and elsewhere, is not likely to challenge Rubio and Claver-Carone unless Pompeo takes the lead, which he shows no sign of doing.

The new national security advisor will have more urgent problems to deal with than wrestling with Rubio, Claver-Carone, and their allies. Indeed, Trump may even give them a green light to escalate provocations even further. For example, Administration allegations that Colombian guerrillas and narcotics-traffickers receive crucial aid from Caracas – buttressed by invocation of the Rio Treaty last week – are logical ways of laying the political groundwork for some sort of military action, perhaps jointly with Colombia, against alleged camps in hopes that the Venezuelan military finally tells Maduro that it’s time to go. 

  • President Trump’s trademark approach to thorny problems has been unpredictability and experimentation with wide-ranging alternatives, including face-to-face negotiations and deal-making with opponents that pose much tougher challenges to U.S. interests than do Venezuela and Cuba. Such flexibility notwithstanding, with the U.S. elections just 14 months off, Trump’s electoral calculus strongly suggests he’s going to stay the course with policies toward Latin America that he’s told are popular in South Florida.

September 17, 2019

Argentina: Market Meltdown Can Be Halted

By Arturo Porzecanski*

From right to left, then-president Cristina Ferdandez de Kirchner, then-minister Alberto Fernandez, and other then-ministers

Ministers of Cristina de Kirchner / Wikipedia / Creative Commons / https://es.wikipedia.org/wiki/Archivo:Ministros_de_Cristina.jpg

The unexpectedly strong performance of the Alberto Fernández-Cristina Fernández de Kirchner (FF) ticket in Argentina’s August 11 presidential primaries has triggered a stampede out of the country’s currency, stocks, and bonds, but FF hold the key to staving off a full-fledged crisis. If the confidence of local and foreign investors is not recovered soon, the market rout has the potential to induce runaway inflation, plunge the economy into a deep recession, and cut off domestic and international financing for both the outgoing and incoming governments, potentially leading to a default.

  • The FF Peronist ticket’s 15.6 percentage-point margin of victory over President Mauricio Macri and his companion was foreseen by none of the pre-election polls. The wide gap shocked investors because it indicates the Fernández duo could win in the first round in the October 27 general election, avoiding a second-round ballot on November 24 in which the pro-market Macri was thought to have a better chance. The coattail effect of FF helped allies in provincial and local primaries around the country. With likely majorities in one or possibly both houses of congress, FF would have a powerful government that could implement much of its agenda, for better and for worse.

Now the challenge is to stop the vicious cycle of capital flight, currency depreciation, accelerating inflation, and plunging economic activity sparked by the electoral results. Failure to do so sooner rather than later will make it very difficult for the government to refinance its maturing short-term debts, and the Central Bank will likely experience a steady drain of its international reserves. In that scenario, the IMF, which has been sending big checks to Argentina every three months, would probably not send the next one in late September.

  • The Macri administration has announced some palliative measures (e.g., a 90-day freeze in gasoline prices and a tax exemption for food purchases), and the Central Bank has tightened marginally monetary conditions. But the government leadership team is powerless to restore the investor confidence that has evaporated.

Given his clear frontrunner status, Alberto Fernández could play a crucial role in reversing the trend. During eerily reminiscent circumstances in Brazil in mid-2002, local and foreign investors were increasingly worried that Luiz Inácio “Lula” da Silva, who was running strong in the polls in his fourth presidential campaign, would end the market-friendly policies of the outgoing Fernando Henrique Cardoso – including a break with the IMF, from which Brazil had been borrowing.

  • Worried about potentially inheriting an economic and financial mess, Lula made a public statement – he called it a “Letter to the People” – making clear his commitment to sound fiscal and monetary policies and the rule of law. He wrote about a “new social contract capable of assuring economic growth with stability,” one of whose premises was “naturally, a respect for the country’s contracts and obligations.” He followed those words with concrete actions. Two months before the elections, he gave his blessing to a new IMF program committing the next government to maintain, with minor modifications, Cardoso’s austere fiscal and monetary policies.

Lula’s actions after his election, including putting a market-friendly and popular mayor in charge of his transition team and choosing a career private-sector banker to run the Central Bank, provide a path that Alberto Fernández could follow as well. Under Lula, the Brazilian Central Bank felt supported in its all-out effort to extinguish the flames of inflation and to buttress the currency. Interest rates were thus hiked as needed before and after the October 2002 elections. He initiated confidence-building meetings with investors before taking office and reassured lenders and investors, both in Brazil and abroad.

  • So far, Alberto Fernández is denying any responsibility for the developing financial and economic crisis, blaming Macri for all that’s gone wrong. But unless he makes announcements that give confidence to local and foreign investors, he will inherit a mess.

August, 22, 2019

*Dr. Arturo C. Porzecanski is the Distinguished Economist in Residence at American University and a member of the faculty of the International Economic Relations Program at its School of International Service. This article is adapted from an essay he wrote in Americas Quarterly.

EU-MERCOSUR: Does Their New Association Agreement Mean Much?

By Thomas Andrew O’Keefe*

29/06/2019 Coletiva de Imprensa UE-Mercosul

Press conference about the trade agreement between the Mercosur and the EU / Palácio do Planalto / Creative Commons

After nearly two decades of intermittent negotiations, the European Union and the four core MERCOSUR nations (Argentina, Brazil, Paraguay, and Uruguay) have finally inked a trade agreement, but its real impact won’t be felt for years, if ever. When the negotiations began in the mid-1990s, the EU was the largest trading partner of the MERCOSUR countries, and the United States was number two. Today China is in first place, the European Union is second, and the U.S. is fourth, behind intra-Latin American trade (EU investors, however, continue to have the largest stock of foreign direct investment assets in the MERCOSUR region). When ratified, the EU-MERCOSUR Association Agreement, signed in Brussels on June 28, will exempt a little more than 90 percent of two-way trade from tariffs.

  • About 93 percent of MERCOSUR exports will eventually obtain duty-free access into the EU market, the bulk as soon as the agreement comes into effect. Agricultural commodities such as beef, chicken, corn, eggs, ethanol, honey, pork, rice, and sugar only get reduced duties, with many also subject to quotas. Another 100 MERCOSUR agricultural items are completely excluded from any type of preferential treatment.
  • Some 91 percent of European exports will get duty-free access to MERCOSUR, but gradually as tariffs are reduced over a 10-year period. The phase-out is over 15 years in the case of European automobiles, furniture, and shoes. MERCOSUR tariffs on the remaining 9 percent of primarily EU manufactured goods will remain in place permanently.
  • The agreement offers service providers from any signatory country full access to the markets of all the other signatory states.

MERCOSUR showed greater flexibility with the EU on agricultural subsidies than it had with the United States, a position that contributed to ultimate rejection of the Free Trade Area of the Americas (FTAA). Subsidies in the EU-MERCOSUR agreement are permitted if “necessary to achieve a public policy objective.” The MERCOSUR countries also capitulated on the use of anti-dumping tariffs on intra-hemisphere trade. The new accord, however, does authorize governments to impose a duty that is less than the margin of dumping if it adequately removes injury to the affected domestic industry. It also includes provisions for ensuring that sanitary and phytosanitary (SPS) measures as well as technical norms are not abused and become disguised impediments to free trade, although it permits enforcement of the European “precautionary principle” notion to restrict the importation of genetically modified food, for example, where the risks to health are not scientifically conclusive.

The agreement – now being “legally scrubbed” and translated into the EU’s 23 official languages – faces an elaborate, multi-year ratification process in the EU, where individual countries and the European Parliament must approve it, as well as each MERCOSUR government. Agricultural forces are already lining up in many European countries in opposition. In the meantime, the accord’s greatest impact is a signal by Brazilian President Bolsonaro and Argentine President Macri that they’re making progress on their stated objective to return MERCOSUR to its original trade focus – in contrast to their predecessors – and to claim an economic “victory” when growth in both countries remains stagnant.

  • Despite the flexibility MERCOSUR showed on agricultural subsidies and anti-dumping, its main sticking points with the United States in the FTAA, a free trade agreement with the United States seems remote as the Trump administration – in contrast to the Europeans – is unlikely to offer meaningful concessions based on the lesser developed status of the MERCOSUR countries. Neither will the Association Agreement with the EU reverse or even slow the region’s shift toward trade with China and the rest of Asia.

August 6, 2019

* Thomas Andrew O’Keefe is the President of New York City-based Mercosur Consulting Group, Ltd. and a lecturer at Stanford University. He is the author of Bush II, Obama, and the Decline of U.S. Hegemony in the Western Hemisphere.

South America: Regional Integration or Presidential Posturing?

By Stefano Palestini Céspedes*

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South American Presidents waving to the cameras in Santiago, Chile / Flickr / Creative Commons

Seven South American presidents’ launch of brand-new regional grouping called PROSUR last week was intended to give a boost to their personal agendas rather than take a serious step toward regional integration. The announcement was made on March 22 at a summit organized by Chilean President Piñera and attended by the presidents of Argentina, Brazil, Colombia, Ecuador, Peru, and Paraguay. The declared goal of the summit was to overcome what Piñera called the “paralysis” of the decade-old UNASUR.  Its final declaration emphasized the need “more than ever to work together to update and strengthen the South American countries’ process of integration” in the face of current and future challenges, including “inserting ourselves in an efficient way into the fourth industrial revolution and society based on knowledge and information.”

  • The creation of the Forum for the Progress of South America (PROSUR), however, delivered very little in terms of regional integration. The Santiago Declaration does not tackle the obstacles that hampered UNASUR, such as its decision-making procedure based on consensus. On the contrary, the declaration envisions PROSUR as a forum exclusively based on presidential diplomacy, in which all decisions by definition must be taken by consensus.
  • The Presidents said the new organization will focus on infrastructure, energy, health, defense, and dealing with natural disasters – the same areas where UNASUR had shown some progress. The declaration did not mention any particular ongoing crisis, such as Venezuela, but it made clear that it would work for full respect for democracy, constitutional order, and human rights. Again, this is not a departure from UNASUR, which also had a democracy clause adopted and ratified by the national parliaments.

The summit promised political gains for several participants. For President Piñera, it was an opportunity to project himself as a regional leader able to convene and coordinate South American heads of states, at a time that his domestic popularity is decreasing. Ecuadorean President Moreno – the only central-left president attending the summit – had yet a new opportunity to signal his willingness to coexist with pro-market governments in the region. For Brazilian President Bolsonaro, a well-known skeptic of South American integration, the summit was a platform to show a more palatable image closer to his liberal peers.

President Piñera and his guests blamed UNASUR’s bureaucracy for its lack of effectiveness, opting instead for a lean mechanism based on presidential diplomacy. Most long-time observers believe, however, that UNASUR’s effectiveness was undermined by its very weak organizational capacity, with a powerless Secretary General and personnel made up of low-ranking national diplomats instead of qualified international civil servants. Presidential diplomacy, unburdened by a bureaucracy of specialists who analyze problems and possible solutions, works well when Presidents get along in ideological terms, but precedent shows it is vulnerable to collapse when governments have divergent preferences or when states must agree on complex transnational issues such as migration, drug-trafficking, or deep economic integration.

  • PROSUR will work exclusively as a forum (not as a regional organization) and its decisions and initiatives will have to be executed and monitored by the national bureaucracies of the member states, which by definition look after national interests rather than regional interests. The Santiago Summit has demonstrated that when it comes to regional integration, leftist and right-wing heads of government look and act alike. No matter which ideology they claim, South American presidents fear collective institutions, cherish presidential diplomacy, and prefer to create new initiatives with pompous names from scratch, rather than make necessary reforms to existing ones. As Uruguayan President Vázquez – who did not attend the summit – put it, South America has a long history of integration initiatives that have not brought about integration. The region would be better served by reinforcing and overhauling existing mechanisms such as MERCOSUR, the Andean Community, or the Pacific Alliance, and try to make them convergent in any possible way, rather than adding yet another acronym.

March 29, 2019

* Stefano Palestini Céspedes is an Assistant Professor at the Institute of Political Science, Catholic University of Chile.

A Right Turn in Latin America?

By Santiago Anria and Kenneth Roberts*

Jair Bolsonaro

Brazilian President Jair Bolsonaro in January 2019. / Marcos Brandão / Agência Senado / Flickr / Creative Commons

After a long winning streak, the left in Latin America has experienced electoral defeats in a number of former strongholds since 2015 – including Argentina, Chile, and Brazil – but the trend is not unidirectional and so far falls short of being a regional “right turn.”

  • Right wing presidents govern today in those three countries as well as Colombia, Guatemala, Paraguay, Honduras, Panama, and Peru – a scenario that is quite different from 2010, when about two-thirds of Latin Americans lived under some form of leftist government. Democratization, financial crises, and market liberalization shaped the 1980s-90s, while mounting social discontent against neoliberal market reforms helped to produce a “left turn” that spread across the region following the election of Hugo Chávez in 1998.  Leftist candidates won 30 presidential elections in 11 different Latin American countries between 1998 and 2014.

The current trend lines are hardly unidirectional across the region.  Mexico, which remained under conservative government when most of the region turned toward the left after 1998, has recently elected long-time leftist leader Andrés Manuel López Obrador to the presidency.  Incumbent leftist parties have been re-elected one or more times in Uruguay, Bolivia, Costa Rica, and El Salvador.  Notably, leftist parties in some countries where they have been historically weak, such as Colombia and Honduras, have strengthened electorally and organizationally, laying the groundwork for further growth.  Leftists’ records elsewhere are mixed.  Rivalries among Ecuadorean leftists make their future uncertain.  Venezuelan President Maduro and Nicaraguan President Ortega have resorted to increasingly repressive and authoritarian measures to maintain their grip on power.

  • With the possible exception of Brazil, the right’s surge is not the result of the sort of social backlash that brought the left to power. In general, the right’s victories appear to be a routine alternation of power rather than a regional wave with common starting points and driving forces.  Argentina and Chile are the two clearest examples of routine electoral alternation of power explained by retrospective, anti-incumbency voting in contexts of economic slow-downs, corruption scandals, and social policy discontent.  In countries like Paraguay and Honduras, on the other hand, the shifts were initiated by non-electoral means – a politically motivated presidential impeachment in the former and a military coup in the latter – and then consolidated through elections after the fact.  In Brazil, the right turn can be traced back to the social protests that broke out against Dilma Rousseff’s leftist PT government in June 2013, but former conservative allies’ opportunistic impeachment of Rousseff, along with their imprisonment of former President and PT founder Lula, seriously weakened her party – paving the way for the election of anti-establishment candidate Jair Bolsonaro.

The left in power is still strong, though probably not unbeatable today, in countries like Bolivia and Uruguay, at least in part because of their roots in and strong connections with social movements.  Unlike the PT, both Bolivia’s MAS and Uruguay’s FA have managed to preserve more of their movement character and to avoid extreme forms of top-down control and professionalization.  The ability of mass popular constituencies and grass-roots activism to hold party leaders accountable and steer public policies in desired directions—a condition largely absent in countries like Brazil, Ecuador, and Venezuela—has helped the left maintain cohesion in Bolivia and Uruguay.  This cohesion, accompanied by significant reductions of inequality, helps to explain the continued vitality of left parties in these countries.  The recent strengthening of leftist alternatives in Mexico and Colombia, moreover, should guard against facile assumptions that a region wide right turn is underway.  Conservative forces’ recent victories are better understood as a reinforcement of the post-neoliberal left-right programmatic structuring of political competition in Latin America than a unidirectional political shift to the right.  That said, Brazil wields significant political and economic influence in the region and, traditionally seen as an “early mover” in the region, may be a bellwether of the future.  The ability of President Bolsonaro and his model of governance to deliver the results that Brazilians want—and to operate within the parameters of democratic institutions—will be key factors in determining the direction and strength of the region’s rightist wave.

January 9, 2019

*Santiago Anria is Assistant Professor of Political Science and Latin American Studies at Dickinson College, and Kenneth Roberts is Professor of Government and Director of Latin American Studies at Cornell University.

Mercosur: Diversifying Partnerships

By Andrés Serbin*

Mercosur Summit

A seminar at the 53rd Mercosur Summit. / Sabrina Pizzinato / UCIM / Creative Commons

Mercosur’s signing of a memorandum to increase economic and commercial cooperation with the Eurasian Economic Commission (EAEU) signals the trading bloc’s interest in diversifying its trade and political relationships beyond the western hemisphere.  The presidents of the Mercosur countries – Brazil, Argentina, Uruguay, and Paraguay –signed the agreement at the 53rd Mercosur Summit, held last month in Montevideo.  At a ceremony at which he accepted the rotating presidency from Uruguay, Argentine President Mauricio Macri emphasized the need for Mercosur to open not just to the Pacific Alliance, but also to Central America, Asia, and Africa.

  • Proposals for closer cooperation with the EAEU have been under study for many years, since Russia first created the Commonwealth of Independent States (CIS) from among the former Soviet republics (except the Baltic countries) after the end of the Soviet Union in 1991. The CIS was intended as a post-Soviet space under Russia’s leadership that would reconnect its members within a “Eurasian” geopolitical region distinct from both Europe and Asia.  The EAEU, formalized in 2015 under the leadership of Russia and Kazakhstan, now also includes Belarus, Kyrgyzstan, and Armenia.  Mercosur ministers agreed to sign the memorandum during meetings immediately before the summit, stating that enhanced cooperation and coordination with the EAEU – with which Mercosur would account for a combined 6.5 percent of world GDP – was consistent with efforts to strike a similar arrangement with the European Union.
  • Mercosur’s decision comes amid international tensions over trade and protectionism, but it cannot be divorced from the ideological, cultural, and geopolitical elements of the vision for “Great Eurasia” of which Russian President Vladimir Putin has spoken (and which Chinese President Xi Jinping has shared). The tensions between Russia and Ukraine, and Western pressures in retaliation, were a key driver of Moscow’s push for formalization of the EAEU as a potential interlocutor with the European Union while at the same time putting a brake on U.S. presence in the region.  Western analysts have debated the power of “neo-Eurasian” identity as a tool of geopolitical projection beyond the creation of a new economic bloc.  China is also a factor in Russia’s calculations.  The “Shanghai Cooperation Organization” (OCS) fostered by both countries and Beijing’s “New Silk Road” project, through Central Asia and to the EU, have also increased the salience of “Great Eurasia.”  Russia and China have increased cooperation in trade, in technology (including military) and against terrorism and extremism.  Through the EAEU and OCS mechanisms, they have extended contacts all the way to India and Pakistan and, potentially in the future, Iran and other countries.

Mercosur’s trade with the EAEU is asymmetrical in favor of the Latin American countries, with the exception of Brazil (with which it is more balanced), according to EAEU officials.  The EAEU has high internal tariffs and limited internal trade – except in bilateral trade between Russia and Belarus – but there are already tariff exemptions for Mercosur members.  Food appears to be the biggest Mercosur export to the region.  Experts believe that trade between the two blocs can be significantly increased, and that a free trade agreement can be signed before the completion of the EU-Mercosur FTA, which has been under negotiation for 20 years.

Although many Western analysts remain doubtful about the success of efforts to form a “Great Eurasia,” Mercosur apparently has determined that engagement with it is low-cost and potentially beneficial.  Beyond the possibility of expanded trade, the memorandum of cooperation signed in Montevideo suggests Mercosur sees a geostrategic interest in signaling openness to such collaboration.  The right-leaning governments of Latin America and the Caribbean are likely to remain generally aligned with the United States, but they have learned the importance of trade diversification over the past two decades.  Setting tradition and ideology aside, most are trying to interact with whomever can bring good deals to their countries in terms of trade, investment, and cooperation.  In the context of Russia and China’s interest in a “Great Eurasia,” Mercosur’s increased outreach to EAEU also reflects an important piece in a strategy to undertake the necessary diversification of its foreign policy in a changing world.

  •  The United States may not appreciate the wisdom of Mercosur’s approach. Eurasia is a blind spot for Washington, which focuses on Russia’s actions in Europe and China’s in Asia – but not in Central Asia itself or as a bridge to India, Pakistan, Iran, Turkey, and the Arab world.

January 7, 2019

* Andrés Serbin is an international analyst and president of the Regional Coordinator of Economic and Social Research (CRIES), a network of more than 70 research centers, think tanks, NGOs, and other organizations focused on Latin America and the Caribbean.  This article is adapted from one published by Perfil.com.

Brazil: Far-Right Foreign Policy Ahead?

By Gilberto M. A. Rodrigues*

John Bolton and Jair Bolsonaro

U.S. National Security Advisor John Bolton (left) and Brazilian President-elect Jair Bolsonaro (right). / Prensa Latina / Creative Commons

Brazilian President-elect Jair Bolsonaro appears to be moving ahead with promises to steer the country’s foreign policy in the direction of his own far-right ideology.  He has accused the Workers’ Party (PT) of former President Lula da Silva (2003-10) and Dilma Rousseff (2011-16) of pursuing a foreign policy with a partisan left-wing ideology, and now he wants to “liberate” Itamaraty, the Ministry of Foreign Affairs, from what he considers an inappropriate ideological bias.

  • Bolsonaro says that President Trump is his inspiration, his “model” of leadership, and he has made policy coordination with Washington a priority. After a congratulations call to Bolsonaro, Trump tweeted that he and the president-elect “agreed that Brazil and the United States will work closely together on Trade, Military and everything else!  Excellent call, wished him congrats!”  Bolsonaro met last week with Trump’s National Security Adviser, John Bolton, to discuss joint efforts to achieve regime change in Cuba and Venezuela, among other topics.
  • Even before that, Bolsonaro had ramped up his already strong rhetoric against Venezuelan President Nicolás Maduro and reversed a long-standing policy of cooperation with Cuba, taking aim first at the 8,300 Cuban doctors in Brazil’s Mais Medicos. “We can’t allow Cuban slaves in Brazil,” he said, “And we can’t keep feeding the Cuban dictatorship.”  Havana began withdrawing the doctors before Bolsonaro could expel them.
  • Bolsonaro has barely mentioned UNASUR and is downplaying relations with Argentina, Brazil’s main strategic partner in the region, while emphasizing relations with what he calls “developed nations.” In addition to the United States, he is focused on Italy, Hungary – due to leaders’ far-right political affinities – and Israel.  The evangelical political forces who backed his election are pressing him to move the Brazilian embassy from Tel Aviv to Jerusalem, respecting “a sovereign decision of Israel.”  The Trump administration will warmly welcome the move, but Bolsonaro will face a potentially significant loss of trade among Middle Eastern and Asian partners.  The president-elect has yet to show his hand on China – Brazil’s main trading partner – and the other BRICS countries.  The Trump administration’s increasingly tough criticism of China’s activities in Latin America may temper the new government’s enthusiasm for closer ties with Beijing.

Bolsonaro has taken positions that set him at odds with the rest of the hemisphere.  He has denied the excesses of Brazil’s past dictatorship, advocated the use of torture against criminals whom he classifies as “terrorists,” used aggressive rhetoric against minorities (LGBTI, women, indigenous peoples, Afro-Brazilian Quilombolas, and migrants), and promised to reduce certain social rights.  Brazil’s diplomatic capital as a leader on environment and climate change is also at risk due to his domestic priority to promote agricultural business and the need to preserve “total” sovereignty over the Amazon Basin at the expense of protecting the rainforest.  He has cancelled Brazil’s commitment to host crucial UN climate change talks (COP25) in 2019, a deal negotiated by the government of President Temer just months ago.

Bolsonaro’s choice of his new foreign minister may be emblematic of his approach to international relations.  He met his commitment to choose a career diplomat, but his choice was Ernesto Araújo, an unknown who was recently promoted without ambassadorial experience who is a self-declared anti-globalist, anti-communist, and Trump’s enthusiastic “intellectual disciple.”  This appointment violates the tradition, observed even during the military governments, of selecting senior, skillful, and experienced ambassadors not directly linked to any ideological trend.  Further questions are raised by the military’s influence in the cabinet.  Two retired generals, Vice President Hamilton Mourão and the future head of Institutional Security Cabinet, Augusto Heleno, are expected to be the president’s right-hand men.  They and an empowered Ministry of Defense certainly will exercise huge influence in promoting a military vision of foreign policy in addressing issues such as borders policy and the Venezuela crisis, and could become a “second track” on Brazil’s foreign policy.

December 4, 2018

* Gilberto M.A. Rodrigues is Professor of International Relations at the Federal University of ABC (UFABC) in Brazil, and was a CLALS Research Fellow in 2017.

Southern Cone: Rapid Transition to Non-Conventional Renewable Energy

By Thomas Andrew O’Keefe*

Edificio Alexander

Edificio Alexander, a building in Punta del Este, Uruguay, that produces wind energy on its roof. / Jimmy Baikovicius / Flickr / Creative Commons

South America’s Southern Cone is undertaking a transition to non-conventional, renewable energy resources – that is, production not dependent on fossil fuels or large-scale hydropower – that creates the opportunity for a historic regional consensus on energy policy.  Uruguay and Chile are at the forefront.  Both lack significant fossil fuel reserves and have experienced crises when droughts detrimentally impacted hydro-supplied electricity.  For them, the rapid shift to other forms of domestically sourced renewables is as much a means to guarantee energy security as to combat climate change.  Approximately a third of Uruguay’s electricity is currently generated from wind power (up from only one percent as recently as 2013).  Similarly, about a third of Chile’s electric power – depending on the time of day – is sourced from the sun and the wind.

  • Brazil has also made significant strides in incorporating wind, and to a lesser degree, solar power into its energy matrix. The primary motivation is the need to offset carbon emissions from the burning of rain forests and the country’s greater use of natural gas.  Brazil has long enjoyed the cleanest energy of any large economy in the world because of its heavy reliance on hydropower, which still covers some two-thirds of the country’s electric needs.  Brazil was also a pioneer in the development of more environmentally friendly sugar-based ethanol (as opposed to corn favored in U.S. ethanol production); most passenger vehicles today have flex-fuel engines.  Paraguay gets almost all its electricity from hydropower (and exports the bulk of what it produces).
  • Argentina, while increasing exploitation of its large shale gas and oil reserves, in 2017 expanded renewable energy projects nearly 800 percent over the previous year, according to reports. President Mauricio Macri has created a more inviting investment climate for the private sector, rapidly increasing natural gas output, especially from the Vaca Muerta shale reserves in Patagonia.  He is also encouraging the expansion of renewable energy beyond large hydro by, among other things, allowing long-term power purchase agreements in U.S. dollars as a hedge against currency devaluations.  Furthermore, large industrial consumers face penalties if they do not meet increasing thresholds set for renewable energy use.  Current laws require that at least 20 percent of the nation’s electricity come from non-conventional renewables by the end of 2025, and they include tax exemptions, import duty waivers, and a special trust fund called FODER, created in 2016, to provide subsidized loans and other assistance.

The rapid expansion of the renewable energy sector in the Southern Cone will enable countries to export excess production to their neighbors, facilitated by a robust regulatory framework to facilitate the cross-border trade in energy resources.  In addition, by creating a fully integrated regional market in renewable energy products, a crucial backup is established for resources such as wind and solar power that are inevitably prone to interruptions during the day.  It would also mitigate the impact of droughts on hydro-generated electricity, which are likely to worsen with global climate change.  Accordingly, there are strong incentives to revive efforts begun by MERCOSUR in the late 1990s to integrate energy markets that collapsed with the Argentine energy crisis at the start of the 21st century.  The fact that all the Southern Cone governments are now ideologically aligned in favor of market-oriented economic and investment policies facilitates achieving a regional consensus on energy for the first time.  Governments in the region now need to move beyond the discussion phase to turn all this into a concrete reality.

October 19, 2018

*Thomas Andrew O’Keefe is the President of Mercosur Consulting Group, Ltd. and currently teaches at Stanford University in Palo Alto and Santiago, Chile.

Argentina: From Gradualism to Shock Therapy

By Arturo C. Porzecanski*

Argentine President Mauricio Macri

Argentine President Mauricio Macri. / Wikimedia / Creative Commons

The austerity measures that President Mauricio Macri announced yesterday to deal with the sharp depreciation of the Argentine peso and acceleration of inflation in the past couple of months are a belated but entirely appropriate effort to stem the country’s massive capital flight.  His administration intends to lower government spending and reimpose taxes on exports to reduce the fiscal deficit faster than envisioned in May, when a three-year economic program was agreed with the International Monetary Fund (IMF).  This is in addition to a previously announced government hiring freeze and cuts to subsidies for electricity and other services.

  • Specifically, the goal now is to minimize the public sector’s financing requirement for 2019, limiting it to rolling over debt maturities coming due plus borrowing $15 billion mostly from the IMF, World Bank, and Latin America’s development banks (CAF and IADB), to cover the interest payments coming due next year. All told, the fiscal deficit contraction that would be achieved between 2017 and 2019 is equivalent to about four percentage points of GDP, compared to the previously pledged 2¾ percent of GDP in savings embodied in the IMF program.
  • In return, Macri’s government has requested the IMF to speed up disbursements under the $50 billion loan facility, which had envisioned a $15 billion up-front payment in June, made on schedule, plus installments of about $3 billion per quarter through June 2021, depending on performance and need. The Fund’s Managing Director, Christine Lagarde, has instructed IMF staff to work with the Argentines to reach a rapid conclusion of discussions to present to the Executive Board for approval.

Macri’s announcement was an admission that what had been advertised in May as a strictly “precautionary” loan must now be amended to provide emergency financing full-throttle.  While a number of emerging-market currencies have come under downward pressure in recent months, the sell-off in Argentina is only comparable to that in Turkey: both the Argentine peso and the Turkish lira currently buy about half as many U.S. dollars as they did at the start of the year (now 100 pesos = $2.60 vs. $5.40 then).  The currency downdraft has dragged Argentine stocks and bonds down when measured in dollar terms; the probability of a debt default in Argentina, as deduced from bond yields, currently ranks highest of all in the emerging markets but for Venezuela, in default since late 2017.

  • Last December, the central bank of Argentina (BCRA) committed itself to achieving an inflation rate of 15 percent during 2018, but prices rose more than that just in the first six months of the year. Given the cost-push pressures unleashed by the peso’s sharp depreciation since May, Argentina would be lucky to end the year with inflation cumulating less than 40 percent.  The patent failure of monetary policy to stabilize the currency and curb inflation thus far will probably be hotly discussed during the government’s negotiations with the IMF.  Last week the BCRA hiked its target interest rate to 60 percent from 40 percent in early August, which is more than double the level that prevailed through May.  Chances are that the IMF will pressure the central bank to keep interest rates significantly above expected inflation until the fever breaks.

We wrote in mid-May that we were witnessing in Argentina the demise of President Macri’s cherished – and popular – gradualism in tackling the poisoned inheritance left after 12 years of populism under presidents Néstor and Cristina Kirchner.  Now we are beholding the embrace of “shock therapy” in fiscal and monetary policies by the Macri administration.

  • Macri and his economic team keep blaming adverse circumstances, such as the worst drought in 30 years, which has delivered the poorest harvest since 2009; risk aversion among investors because of the tightening of U.S. monetary policy; and uncertainty generated by the “corruption copybooks” scandal involving Kirchner government officials and construction industry businesspersons. Their diagnosis is patently wrong.  Despite the poor harvest, Argentine export earnings through July have increased in the best performance in several years.  The tightening of U.S. monetary policy has been very gradual and well telegraphed in advance; it has not caused problems in prudently managed countries.  And the recent scandal is tarnishing Macri’s opposition in the legislature and has not reached the scope of the “carwash” scandal in Brazil.
  • Macri and his team are reaping what they sowed. In 2016-17 they claimed that they could do little to address the inherited fiscal and monetary problems because otherwise they would lose precious seats in midterm congressional elections and end up as lame ducks.  And then, after Macri’s party Cambiemos did well in the October 2017 contest, they claimed that in 2018-19 they could do little to address the inherited fiscal and monetary problems because otherwise they would lose the presidential elections in October of next year.  Up until February, local and foreign investors were willing to give the Macri administration the benefit of the doubt, but then they got impatient, started to pare their positions especially in short-term government bonds, and subsequently decided to exit on a large scale when the central bank failed to tighten monetary conditions sufficiently to keep the peso from depreciating rapidly.

September 4, 2018

*Dr. Arturo C. Porzecanski is Distinguished Economist in Residence at American University and a member of the faculty of the International Economic Relations Program at its School of International Service.