TRADE-LATAM: Lula Revives Hopes for Mercosur in Midst of Crisis

By Mario Osava Reprint | | Print |

Mario Osava*

RIO DE JANEIRO, Dec 26 2002 (IPS) - Luiz Inácio Lula da Silva will become president of Brazil on Jan 1 with an ambitious plan for the reconstruction of South America’s Mercosur, that has given rise to new hopes just when the outlook for the trade bloc is dimmer than ever.

The countries that make up the Mercosur (Southern Common Market) trade bloc – Argentina, Brazil, Paraguay and Uruguay – remain in the grip of severe economic recession or unprecedented financial crises, and are once again suffering high inflation.

To that is added the awareness of the shortcomings of the Southern Cone integration process and the assymetries between the member countries.

The huge differences in size, populations and economies mean the bloc presents ”different benefits, costs and responsibilities for each of the countries,” Sergio Abreu, who served as foreign minister of Uruguay in the early 1990s and minister of industry up to November, told IPS.

We must admit, ”without hypocrisy,” that the decisions adopted by Argentina and Brazil give rise to circumstances that affect the entire bloc, he said.

”Now more than ever the fate of the bloc is in the hands of its two big members,” Uruguayan economist José Manuel Quijano commented to IPS, after asserting that the government of his country, led by President Jorge Batlle, had ”lost its direction” in terms of foreign policy.

But Lula, the former steelworker who won the presidency of Latin America’s biggest country in October as the leader of the leftist Workers’ Party (PT), has emerged as the new ”savior” of the integration process, triggering hopes, especially in crisis-stricken Argentina, of economic and social recovery, driven by Brazil as the locomotive.

To achieve that, the future president of Brazil promised to promote growth in his country, as well as a strategic alliance with the Mercosur and the rest of South America that goes beyond trade, with common policies for industrial, agricultural, social and cultural development, based on the model of the European Union.

But the practice does not necessarily reflect the rhetoric when it comes to implementing projects that lead to conflicting interests, Tullo Vigévani, a professor at the State University of Sao Paulo and a researcher with the Centre of Studies on Contemporary Culture, remarked to IPS.

Lula’s advisers, for example, have suggested the creation of a ”green currency” that would replace the dollar in payments of agricultural and food products within the Mercosur.

Brazil’s new government will be interested in obtaining supplies for its ”zero hunger” programme, aimed at guaranteeing that the country’s 9.3 million poorest families have access to an adequate diet by the time Lula’s term ends in four years.

But Argentina would like to convert its trade surplus with Brazil into dollars, Vigévani pointed out.

The analyst said the consolidation and strengthening of the Mercosur requires, in first place, that the member countries become less dependent on foreign credit, in order to avoid currency and exchange rate crises, even if it is at the cost of lower growth levels.

Another problem is Uruguay’s financial system, ”which is incompatible with the Mercosur” due to its freedom of capital flows, which aggravate Brazil’s difficulties, he added.

Brazil, at any rate, ”will have to grant generous concessions” to its partners to ”reactivate” the Mercosur and turn it into a source of greater bargaining power for free trade negotiations with countries outside the bloc, he maintained.

The president of the Association of Brazilian Companies for Integration in the Mercosur, Michel Alaby, underlined to IPS that a concrete support, which should remain in place, is Argentina’s surplus in its trade balance with Brazil, which could amount to three billion dollars this year.

Alaby said the first six months of Lula’s administration would be ”very difficult” due to the financial crisis and scarcity of investment ”around the world,” which will affect regional integration processes.

However, the current similarity in the value of the currencies of Brazil and Argentina and the consequent balance of prices have given rise to the real possibility of macroeconomic coordination, the absence of which has been the ”Achilles’ heel” of the Mercosur up to now, he noted.

Another step towards strengthening the bloc would be to study the productive chain, identify ”complementarities”, and promote industrial policies that would allow each country, and the four member nations together, to boost their international competitiveness, the business leader said.

Exports are the road to recovery, he added, since no further expansion of trade within the bloc is possible.

Argentine economist Roberto Bouzas, with the private University of San Andrés and the National Council of Scientific and Technical Research, said that mere improvements in macroeconomic coordination would not restore the Mercosur’s damaged credibility.

The bloc’s weakness is a result of circumstances that existed even prior to Argentina’s economic collapse and Brazil’s financial difficulties, such as ”the erosion of shared objectives” and the subsequent ”loss of focus,” said Bouzas in a report presented to the Group of Reflexion on the Mercosur, convened by outgoing Brazilian President Fernando Henrique Cardoso.

Brazil, which is more keen on strengthening its bargaining position in international negotiations like the talks on the creation of the Free Trade Area of the Americas (FTAA), is seeking integration along the lines of a more complete customs union, while the rest of the Mercosur members are more interested in regional free trade, he pointed out.

The enormous disparity in size between the members leads to different interests, accompanied by other ”corrosive” effects, such as the imposition of a common foreign tariff that is more in line with the protectionist structures of Brazil, the bloc’s biggest market, he added.

The flood of rules, norms and decisions that have ”no practical effect” and which fail to set priorities has given a false impression that the integration process was moving forward, but actually it only demonstrated that the bloc had lost its focus, according to Bouzas.

”The governments’ renewed political commitment” to integration is vital to shoring up the bloc’s credibility, whose ”key problem” is not only the fact that its customs union is incomplete, but also the ”precarious free trade area” which is governed by unstable regulations on market access, said the Argentine analyst.

* Marcela Valente/Argentina and Darío Montero/Uruguay contributed to this article.

TRADE-LATAM: Lula Revives Hopes for Mercosur in Midst of Crisis

By Mario Osava Reprint | | Print |

Mario Osava*

RIO DE JANEIRO, Dec 26 2002 (IPS) - Luiz Inácio Lula da Silva will become president of Brazil on Jan 1 with an ambitious plan for the reconstruction of South America’s Mercosur, that has given rise to new hopes just when the outlook for the trade bloc is dimmer than ever.
(more…)