Cumbritis and Prospects for Latin American Regionalism

By Carlos Portales
Washington College of Law and Center for Latin American and Latino Studies

UNASUR Cumbre by  Globovisión | Flickr | Creative Commons

UNASUR Cumbre by Globovisión | Flickr | Creative Commons

Latin America has experienced a veritable proliferation of presidential summits (cumbres) in recent years, an indication of how the hemisphere’s complex web of regional ties is shuffling the landscape of multilateral organizations. This trend was manifested in the Nov. 16-17 Iberoamerican Summit in Cadiz, Spain, followed in quick succession by summits for UNASUR on Nov. 30 and MERCOSUR on Dec. 7. The New Year will witness two summits in Santiago, Chile, the first between the European Union and Latin American and Caribbean States, the second among Latin American and Caribbean States (CELAC).  While sometimes useful in isolation, the cumulative impact of these meetings may be less than the sum of its parts. Indeed, the region may be suffering a bout of cumbritis that is as distortive as it is productive.

The Cadiz summit reflected Spanish determination to sustain an Ibero-American bloc amidst its own profound crisis. Spain’s investments in Ibero-America, particularly in banking and telecommunications, are keeping alive important sectors of the Spanish economy. When the VI UNASUR Summit met in Lima two weeks later, the Presidents of Argentina, Brazil, Venezuela and suspended Paraguay were all absent. Still, the meeting reaffirmed UNASUR’s role in political and military matters: UNASUR was active in the crisis in Paraguay, sent its first-ever electoral mission to Venezuela, the South American Defense Council provides coordination in defense industries and natural disaster responses, and aspires to support protection of human rights.

The following week in Brasilia, MERCOSUR formally incorporated Venezuela and signed an adhesion protocol with Bolivia. However, as Tom Long wrote in “Mercosur’s future: Whither economics?” on Dec. 18, MERCOSUR’s expanding breadth masks a lack of depth. The trade bloc has not agreed on a common external tariff, and integration has stalled as Argentina and Brazil adopted unilateral protectionist measures both during and after the global financial crisis. Though its market is growing, MERCOSUR’s ability to negotiate with third parties is limited. The countries most interested in boosting trade have split off on their own under the loose Pacific Alliance (PA), whose Presidents met on the sidelines during the Cadiz summit. Chile, Colombia, Mexico and Peru have set high targets for the reduction of customs duties and plan on reducing visa requirements for their citizens while already having FTAs with the US and Europe.  Chile and Peru have reached similar accords with China and other main Asian countries. However, the Alliance is primarily an informal gathering of free-trade-minded presidents, and so far institutionalization is minimal.

Brazil is leading South America-centered institutions (UNASUR and MERCOSUR) when it perceives that these suit its interests; The Venezuela-led ALBA has lost steam due in part to President Chavez’s illness; the PA process remains low-key and trade centered. Meanwhile, the Organization of American States risks irrelevance. Its robust human rights system has come under attack from ALBA countries and others, while four ranking members of the U.S. Senate Foreign Relations Committee have lambasted its leadership publically. The OAS may not be unsalvageable, and it remains potentially useful, though that potential will only be realized if the United States endeavors to support rather than undermine its efforts.

And Summits alone will not ensure the success of any of these multilateral forums: increasingly ubiquitous conversations among presidents can be effective for defusing immediate crises and for establishing guidelines for cooperation, but their long-term impact on policy coordination will be limited if they are not matched by analogous cross-national dialogue among key government ministries. The symptoms of chronic cumbritis lie in the failure of many presidential declarations to result in concrete advances in cooperation.

Mercosur’s Future: Whither Economics?

By Tom Long

Mercosur’s December 6 meeting in Brasilia might seem to be a watershed. The organization formally integrated Venezuela and signed adhesion agreements with Bolivia. Ecuadorean President Rafael Correa was in attendance, too, along with officials from other South American countries. The bloc was established starting in 1991, with goals of removing internal tariffs, setting a common external tariff, coordinating commercial policies, and harmonizing regulations. An unwritten objective was to spur industrialization and decrease dependence on foreign manufactures. Yet more than twenty years on, Mercosur appears to be further than ever from establishing a common market. The Inter-American Development Bank notes that Brazil and Argentina have traded protectionist measures, and that “Buy Brazil” provisions in government procurement have been a bilateral irritant.

Mercosur

Expanding breadth masks decreasing depth. While both Mercosur’s total trade and trade among its members have grown greatly over the past decade, the former has outpaced the later.  WTO data show that intra-regional trade as a percentage of total trade has declined from 31 percent in 2000 to 25 percent in 2011. Instead of being driven by integration, MERCOSUR’s trade patterns are propelled by skyrocketing trade with Asia, led by Argentine and Brazilian commodity exports. In this light, the failure of late October meetings between Mercosur and the European Union suggest that China has taken the place of Europe.

Evaluated from a strictly economic perspective, Mercosur’s recent expansion represents a step backwards. The inclusion of Bolivia will not add much economic heft to the pact, and with the addition of each new member, reaching consensus will become even more difficult. The full membership of Venezuela increases the bloc’s size, but also its dependence on natural-resource exports. Neither newcomer—nor the two original heavyweights—appear committed to the original common market mission. Is the bloc’s raison d’etre shifting from the economic to the political? If so, what will be Mercosur’s relation to ALBA and UNASUR? Whereas Brazil was never fully comfortable with the Bolivarian Alliance—in part because of the anti-U.S. tone—it has now brought ALBA’s two most committed members to its own table. Inside Mercosur, Brazil has a greater voice than it does in UNASUR, but the hijacking of a potentially important trade alliance masks a lack of economic leadership for South America.

Brazil’s Protest: If You Get QE3, We Get Tariffs

Photo by “SqueakyMarmot” | Flickr | Creative Commons

For two years Brazilian voices have complained that U.S. policies of near-zero interest rates and “quantitative easing” have been damaging its economy.  Lax monetary policies in the U.S. and Japan are blamed for the high valuation of the Brazilian real, which further suppresses Brazil’s  languishing manufacturing sector.  Tensions escalated following the September 2012 announcement of the U.S. Federal Reserve’s third round of quantitative easing.  Now the debate has spilled over into discussions about Brazilian restrictions on trade.  As Finance Minister Guido Mantega warns of a “currency exchange war,” Brazil is increasing tariffs on U.S. goods and foresees the imposition of taxes on inflows of foreign capital, which further inflate the Real.  Writing in Folha de São Paulo, Luiz Carlos Bresser-Pereira argues that Brazil is acting in self-defense.  The tariffs Brazil is contemplating are by his account not protectionist but simply an effort to compensate for the unfair advantage that the U.S. seeks to achieve through its monetary policy.

The tension is spreading beyond Brazil, as currency appreciation is portrayed as a drag on manufacturing in much of South America.   In an interview with CNN, Chilean President Sebastián Piñera criticized “QE3,” asserting that “printing money” would not solve U.S. economic woes.  So far, Andean countries are responding by purchasing dollars and cautiously reducing interest rates, but the Brazilians, in particular, present protectionist measures as counter-cyclical tools of their own, necessitated by American attempts to “drive down” the dollar.

The Brazilian and South American claims may be overdrawn somewhat; many experts believe that overvaluation is primarily a consequence of Chinese demand for South American commodities and the decision by most Latin American countries to maintain high interest rates in order to forestall inflation.  But U.S. policies meant to boost job growth are indeed having unintended consequences in the hemisphere.  There has been little thought in the United States of the external implications of Fed policy—beyond a belief that a reinvigorated U.S. economy would be good news for everyone.  Brazil has been the first, and most vocal, challenger of a stance that always frowns on tariffs while presenting monetary policy as a purely domestic matter.  It is a bit much for Brazilians to expect that U.S. monetary policy should be crafted with an eye to its impact on the region, particularly when conventional fiscal policy measures are thwarted by Congressional dysfunction, but Washington should not be surprised when efforts to tamp down its currency – not unlike Chinese policies that Washington condemns  – are seen abroad as aggressive threats to competition.

The Demise of Partnership?

Graphic: Summit of the Americas organization; public domain.

The real news at the Summit of the Americas in Cartagena, Colombia, in April was the dissonance between the Obama administration – with its sincere but content-free rhetoric of partnership – and Latin American leaders across the political spectrum, even among the friendliest.  This was in sharp contrast to the Summit in 2009, when the region was palpably excited about the new American President.  This year, press reports portrayed President Obama as unaware that the hemisphere is changing, and noted that he oddly said that criticism of U.S. policy was reminiscent of the Cold War, while he put himself out on the fragile limb of defending a Cuba policy rooted in, precisely, the Cold War.

Most observers in the region judge that the main takeaway from Cartagena is that while Washington offers little and listens less, Latin America is moving away.  Over the past decade South America has sustained rates of economic growth higher than any since before the oil shock of 1973, and the U.S. is hardly an unchallenged source of trade and investment.  (Chinese and EU trade with South America has surpassed that with the United States.)  Chavez’s aid to Cuba and Nicaragua far exceeds Washington’s meager offerings to even best friends like El Salvador.  The Brazilian National Development Bank, BNDES, provides more loans in the region than the World Bank and Inter-American Bank combined.

Americans’ fascination with the Cartagena prostitutes dwarfs interest in the lessons of the serious regional dynamics that played out in the Summit.  Whether U.S. political leaders and pundits acknowledge it or not, failure to dialogue seriously with neighbors about the 50-year effort to change the Cuban regime or the failure of the 40-year “War on Drugs” will have consequences for the United States.  Washington rejects the region’s efforts to re-think issues, such as the wisdom of the current approach to narcotics, at its peril.  Central America was an unhappy front-page story in the 1980s and now threatens to reemerge as a major headache because of domestic crime (fueled by U.S. deportations) and the drug trade – while Washington fiddles with time-worn formulas and programs.  The Obama Administration still has time to make good on its pledge of “partnership” and get serious about listening to and working with our neighbors.