INTEGRATION-MERCOSUR: Economists Outline Cures for Bloc’s Ills

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Sep 15 2000 (IPS) - Mercosur (Southern Cone Common Market) must recover its credibility, promote an agenda of co- operation among its members, improve the quality of its leadership and reduce the gap between the promises made and their effective implementation.

These were the conclusions of the conference “Mercosur: A Possible and Necessary Challenge,” hosted by the private Osde Foundation in Buenos Aires, in which 3,000 people participated Thursday, with presentations by academics from Argentina, Brazil, Chile and Uruguay.

The regional experts agreed that Mercosur is in a critical period and suggested various scenarios for recovery. In nearly all, the economic performance of Argentina and Brazil plays a key role in driving the integration project, which also includes Paraguay and Uruguay.

Mercosur must prove in the short term that it is capable of completing the “ambitious” agenda drafted at its last summit, held in June, stressed Pedro da Motta Veiga, head of the Brazilian Society for the Study of Transnational Firms and Economic Globalisation.

Motta Veiga indicated that the challenge in the coming years will be the “institutionalisation” of the bloc – understood not only as the creation of institutions in the strict sense, but also as “the effective compliance with commitments made and the internalisation of those agreements.”

For Argentinean economist Roberto Bouzas, of the Latin American Faculty of Social Sciences (FLACSO), Mercosur must work to rebuild its credibility by complying with its accords, but to do so, he pointed out, it is essential to politically define how the member nations will confront a wide range of difficulties.

One such problem is that the roads to integration have begun to diverge, and today, the paths of Argentina and Brazil are deviating a great deal more than they did in the first half of the 1990s.

In addition, the new agenda for the region is “much more conflictive and less co-operative,” he said.

Bouzas outlined three periods in the building of the Mercosur bloc. The first, from 1991 to 1995, was one of growing trade, with advances in meeting the terms of pacts – largely in the elimination of tariffs – achieved amid a co-operative and tolerant atmosphere.

Then, from 1995 to 1998, Argentina and Brazil, which until then had maintained a high level of agreement as far as trade liberalisation and the idea of the market as the central axis of development, began to grow apart.

The agenda became complicated in this second phase because the pending issues were increasingly complex and obscure. “It is now even difficult to agree on the contents of the agenda,” Bouzas pointed out.

The economic environment, meanwhile, far from promoting a return to the integrational road, contributed to the conflict.

The financial crises of Mexico in 1994 and 1995, in Southeast Asia beginning in 1997, and in Russia in 1998, took their toll on the Mercosur economies. Even so, the management of the bloc continued to operate through co-operation, said the economist.

But then a third phase began, in which intra-regional trade stagnated, the gap between commitments and compliance widened and differences were handled in an increasingly conflictive manner.

Bouzas indicated that Mercosur must get back on its strategic track, “recover its utopia.” The bloc also needs to de- politicise its disputes, make progress in those areas where consensus is easily reached, and improve the quality of the leading role held by Brazil.

“Mercosur needs more policy and less rhetoric, more official leadership and fewer threats of retaliation, more offensive presence in the private sector and less defensive. Really, the problem facing the bloc today is not so much technical as political,” he said.

Brazil’s Motta Veiga acknowledged that conflicts prevail, that the outlook is not optimistic for the recovery of the last summit’s agenda – about re-launching Mercosur -, and that the bloc seems to be bogged down in the day-to-day sectorial conflicts, such as those afflicting sugar and automobile trade.

Brazil demands that Argentina dismantle its sugar tariffs, but Buenos Aires conditions such a move on the elimination of government subsidies it says Brazilian producers receive.

The two partners reached an accord for bilateral automobile trade, though Brazil objects to Argentina’s interpretation of the document.

In Brazil there coexist several perceptions of Mercosur, each traversed by the idea of a bloc adapted to the nation’s own foreign policy, which tends toward fighting the United States for leadership in South America, commented Motta Veiga.

These interpretations determine the route followed by the bloc’s four partners, which together represent nearly 80 percent of South America’s combined gross domestic product (GDP).

In Brazil, “the functionality of Mercosur is evaluated in light of its contribution toward increasing the nation’s power in negotiations with the United States,” he pointed out.

One of these perspectives, that of “Brazil as a regional power,” is especially frustrating for Argentina in the commercial sphere and limits Argentina’s autonomy in foreign policy.

Another interpretation, prevailing in the Brazilian presidency and Foreign Ministry, sees Mercosur as a strategic alliance. It shares the first approach’s purpose of competing with the United States, but allows the bloc’s continued development to build a stronger base for negotiations with the industrialised North.

This Brazilian stance is a source of concern for Chilean economist Patricio Meller, of the Corporation of Economic Research for Latin America. In his opinion, Mercosur needs to do more than boost trade and exports if it is going to recover its credibility.

Meller expressed his support for eliminating non-tariff restrictions, emphasised the need to openly discuss the Argentinean and Brazilian currency exchange regimens, and outlined another sensitive issue: Brazil’s commitment to a floating exchange rate and trade liberalisation.

The Chilean economist said he believes Brazil sees Mercosur as a tool for building a position to confront the United States, and not as a tool to improve the region’s competitive force on international markets.

Uruguayan economist José Manuel Quijano said Mercosur’s development model should go beyond the stage of raw materials exports and move towards industrialisation – comments that seemed to contradict the approach of his Chilean colleague.

Meller had emphasised the benefits of the Chilean development model, which was able to multiply the country’s exports over the last 30 years, selling a variety of products in more than 130 countries, and tacitly recommended this strategy for Mercosur, a bloc Chile is attempting to join.

Chile is an associate member of Mercosur, but Meller indicated there is mutual interest in making it a full member. The major advantage for Chile would be access to an enormous market – more than 210 million people -, while the rest of the bloc would benefit because the new member would add a healthy economy to the fold, as well as access to Pacific coast ports.

Meller said that if Brazil’s intention is to compete with the United States, it would be better off developing a leadership position that is less committed to national interests and more in line with the common interests of the entire bloc.

As far as Meller’s recommendation that Argentina and Brazil try to harmonise their exchange regimens before dealing with other macroeconomic variables, Bouzas indicated that the two countries are not willing to discuss the matter in the short term.

Brazil devaluated its currency in January 1999, adopting a floating exchange band, while Argentina has maintained a fixed exchange since 1991, based on parity with the US dollar.