Mercosur blues

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Mercosur blues


Andres Velasco

SANTIAGO - When the leaders of Mercosur met in Caracas this week, the usual bluster about standing up to imperialism filled the air. But so did the unmistakable scent of decay.

Mercosur is usually described as a trade grouping; in fact, it has been a political creation from the start. Brazil, the regional powerhouse, always viewed it as a counterweight to the United States in hemispheric affairs. Peronist governments in Argentina used it to hype integration while doing little or nothing to remove actual barriers to trade. With the entrance of Hugo Chavez’s Venezuela in 2006, the lurch toward populism became unmistakable.

As a Chilean government minister late last decade, I remember the frustration of attending Mercosur gatherings (Chile is an associate member). They were long on posturing and endless speeches, but short on substantive agreements about anything.

At the 2006 summit in Cordoba, when Chavez and Fidel Castro dueled over who could deliver the longest and most rambling address, spirits were running high. Bolivia, also governed by a charismatic populist, was keen to develop closer ties. Ecuador soon followed suit. And a smattering of smaller countries in Central America and the Caribbean fell into political line in exchange for generous infusions of Venezuelan cash and oil. Back then, Mercosur leaders could claim to offer an “alternative development model” for the region. No more.

This week in Caracas, the mood was funereal. The host, Chavez’s successor Nicolas Maduro, confronts a collapsing economy and tensions within his own party. Despite relatively high oil prices, Venezuela has a large fiscal deficit and falling foreign-exchange reserves. The inflation rate is the region’s highest, and the economy is stagnating.

In the face of popular frustration with worsening living conditions, Maduro’s government has relied on violent repression to put an end to street protests. Opposition leader Leopoldo Lopez spent months in a military prison before recently being put on trial. Institutions like Human Rights Watch have repeatedly denounced the government’s rights violations and restrictions on civil liberties.

Argentina’s president, Cristina Fernandez de Kirchner, arrived in Caracas hoping to rouse support in her fight against the so-called vulture funds that bought her country’s sovereign bonds on the cheap and have successfully sued for payment in full. But Fernandez found that her colleagues’ polite words of encouragement mattered little. The U.S. Supreme Court’s decision last month to uphold a lower court’s ruling against Argentina put her in an impossible situation. Paying the recalcitrant bondholders would mean losing face and possibly triggering a salvo of copycat lawsuits; not paying would mean technical default and all of its attendant costs. She chose the latter option.

Access to foreign capital matters for Fernandez, because, like Maduro, she faces a stalled economy and a growing dollar shortage. Domestic stabilization measures earlier this year bought her some time, yet fear of a recession remains. In an effort to regain access to capital markets, her economic team patched up things with the Paris Club of sovereign creditors and Spain’s Repsol (the former owner of nationalized oil giant YPF); but the fight with the vultures has set the country back. With a presidential election looming in October 2015, most potential candidates (even those from her own party) are quickly distancing themselves from her authoritarian style and troubled economic legacy.

In Bolivia, President Evo Morales has resorted to legal and constitutional shenanigans to guarantee himself yet another term in office. After two terms, Morales would in theory be prohibited from running again. But Bolivia’s constitutional court has ruled that he can, because the adoption of a new constitution redefined the country as the Plurinational State of Bolivia; Morales, therefore, served his first term as the head of a different state. When asked why he will run again, he replied - in a peculiar confession for a nationalist leader - that former Queen Sofia of Spain had encouraged him to “finish the job.”

In Ecuador, too, democratic institutions are under siege. An independent report has chronicled 12 separate episodes of government meddling with court rulings. A controversial gag law on the press that was enacted last year has already ended a major newspaper’s print edition. According to Catalina Botero, the outgoing rapporteur for Freedom of Expression of the Inter-American Human Rights Commission, “Ecuador is, along with Cuba, the country that most restricts freedom of expression.”

Brazilian President Dilma Rousseff faces a situation that is both similar to and different from that of her Mercosur colleagues. Brazil is not the kind of country where a president can manipulate the constitution or close newspapers at will. But malaise is in the air in Brasilia (leaving aside the World Cup thrashing delivered by Germany).

Brazil’s swift recovery from the 2008 financial crisis endeared it to international financial markets; but weak growth since then has left yesterday’s promise unfulfilled. Despite low unemployment, economic anxiety is on the rise - and is beginning to filter to the political realm. With Rousseff dropping in the polls and her opponents slowly gaining, the October presidential election - once thought to be a done deal - may be up for grabs.

Absent from the Caracas summit was Chile’s president, Michelle Bachelet, who blamed a cold and a busy domestic agenda for her inability to travel. Political complications linked to a possible meeting with the Venezuelan opposition, which Bachelet had chosen not to attend (preferring to send her foreign minister), likely also played a part.

Rousseff and Bachelet were natural candidates to lead the development of a moderate counterweight to the populism of Maduro, Fernandez, Morales, and Correa. But Rousseff, like her predecessor, the popular Luiz Inacio Lula da Silva, has chosen not to fill that role, instead cozying up to Venezuela. Chile is too small to go it alone, and Bachelet has her hands full with increasingly controversial tax, education, and constitutional reforms.

Uruguay’s president, Jose Mujica, offered the best summary of what happened in Caracas: “We issued a statement.” In other words, Mercosur remains an irrelevant talking shop - and the emergence of a modern center-left regional leadership in Latin America will have to wait.

Copyright: Project Syndicate, 2014.

* The author, a former finance minister of Chile, is a visiting professor at Columbia University.

BY Andres Velasco

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