Sunday, November 23, 2014

Mercosur Blues

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 Chávez’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 Córdoba, when Chávez 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, Chávez’s successor Nicolás 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 López 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 Fernández 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 Fernández found that her colleagues’ polite words of encouragement mattered little. The US 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 Fernández, 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 Sofía 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, Fernández, Morales, and Correa. But Rousseff, like her predecessor, the popular Luiz Inácio 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, José 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.

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    1. Portrait of Michael Heller

      CommentedMichael Heller

      I received a First Class Honours degree in Latin American Studies at a UK university in 1984. Despite the fact that Latin American Studies is and always has been an extremely leftwing academic sub-discipline in every Western country you care to mention, and despite the neo-marxist propaganda I was subjected to in those 4 years by highly-qualified well-intentioned but themselves brainwashed (or brainless) university teachers… despite all that even then it was becoming clear to me that the aggregate pervasiveness of leftwing ideology in the Latin American region was the basic reason for Latin America’s ineluctable and tragic 20th century UNDER-development.

      We don’t want more of that now. So I’m disappointed to read this sentence by Andrés Velasco implying that a ‘better’ left will eventually save Latin America from its never-ending stagnation:

      “The emergence of a modern center-left regional leadership in Latin America will have to wait”

      Forever… one hopes. The rest of the article is a useful indictment of the habitually pompous rhetoric of left populism, which makes Latin America the laughing stock of the world. But the notion that the center-left is a solution is grossly vain and unimaginative.

      What Latin America needs is a fresh centre-right regional leadership, smarter than previous ones, more aware of the institutional reform imperative. Of course there should be no return to the hard-right leaderships of yesteryear which, with few exceptions (e.g. the Chicago Boys), were largely incompetent bureaucratic-authoritarian governments which (please remember) arose directly in reaction and response to the very real threat posed by marxist and maoist movements rampant throughout the region in the 1970s. It is precisely the idiocy of the left in power now which could provoke extreme reactions again in the future.

      This week it’s easy to dress-up Argentina’s umpteenth debt crisis default in technical niceties which make it look as though Argentina has been placed in an impossible position. That is hogwash. Marxist-Keynesian pig-headed isolationism has prevented Argentina from solving the ‘vulture’ problem in the past 5 years.

      The reality is that Argentina has repeatedly placed itself in the position of bancarrota (bankruptcy) every half-decade since the mid-20th century. I always quote Argentina’s 19th century liberal intellectual and statesman, Juan Bautista Alberdi, who even then was aware of the persistent attitude and interest which blocked all long-run paths to prosperity.

      Alberdi noted that the causes of the economic crisis of 1876 seemed to be the same as those of the crises which preceded it at intervals of about ten years since independence, in 1840, 1852, 1860, 1865 and 1870. Although all were banking and debt crises, Alberdi argued they were “not economic but rather political and social”. Argentina seemed not to learn from its errors. Its people lacked the classical liberal ethics of work, thrift, saving and commerce without which emerging economies cannot sustain progress. Argentines did not realise that lasting wealth creation also meant sacrifices. Borrowed money was wildly misused. Credit, especially when it originated from overseas, rapidly disappeared on luxuries and political patronage. Periodic prosperity was illusory.

      Each crisis, wrote Alberdi, was “sudden generalised impoverishment produced by the frenzy of sudden enrichment”. Misuse of credit was “the abuse of a noble effort” and reflected all that was wrong with Argentine political and economic life. This was a modern view of crises. Alberdi wrote: “It is well known that all crises explode at end of a period of prosperity. That is not the reality, but rather the way it appears to be… What was taken for prosperity was profligacy, the squandering of capital investments in bad businesses and vain possessions.”

      You don’t need to be a genius like Alberdi to recognise the pattern today. Argentina returned to crisis after 50 years of stable liberal-economy growth. Multi-class political alliances, social mobility, and a decade of reformist technocracy and financial discipline during the ‘Concordancia’ in the 1930s ensured the benefits of Argentina’s globalisation could be felt until as late as WW2, in spite of the world depression, and in spite of domestic political troubles and a growing antipathy towards growth-promoting exporters and foreign business interests. After 1945, however, a populism-crisis-correction pattern set in. With the election of Juan Peron as president, Argentina began its ‘long decline’.

      The Kirchners and the clowns and scoundrels of the ‘Mercosur Left’ are descendants of Peron and all subsequent Latin American socialisms … bar one ... the Chilean Socialists, which are here represented by the often-wiser-than-today’s-eulogy-to-the-centre-left -- Andrés Velasco. Their great achievement, which unfortunately the present government in Chile may not now be so capable of repeating, was, like Tony Blair’s new socialists in the UK, to explicitly adopt and cultivate the obvious virtues and successes of Thatcher-era neoliberalism. Notwithstanding the occasional short-lived neoliberal rhetorical flourishes, for example in Mexico, the Chilean success story remains unique in Latin America.

      When I was a university teacher and economic adviser to the presidential candidate José Octavio Bordón in Argentina in the mid-1990s I tried in vain to explain to people on the left that East Asia’s industrial activism, which they then worshiped like a secular god, could not be replicated in Argentina because the institutional dysfunctions and inefficiencies were too great. The way forward was the route proposed by the centre-right, which itself was impossibly constrained by its unwillingness or inability to do root-and-branch institutional reform. It struck me then, as before and since, that the primary task was ideological.

      Somehow or another, beginning in elementary school, intelligent Latin Americans, the intelligentsia and litterateurs (there are more of them in Latin America than perhaps any other region of the world), must decouple Latin America from its marriage to leftwing ideology. Today, by putting false hope in a modern left, Andrés Velasco reveals to us still how persistent the problem is.

      There is an alternative, it should be said. The ‘classical liberal’ smart thought-leaders of late-19th century Latin America were such a modern, promising, lively, and adaptive generation compared with their twentieth and twenty-first century leftwing counterparts. Latin America’s emergence from red-faced embarrassment in the shadows will depend on picking up again from where those inspiring 19th century ideologists like Alberdi left off.