July 16: Mercosur’s expansion

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The Argentine city of Córdoba will on Thursday provide the setting for some mutual celebration by the presidents of the Mercosur’s new big three – Brazil, Argentina and Venezuela. Now that President Hugo Chávez has brought his considerable oil reserves and growing financial pull to the services of regional economic integration it is difficult to see how the group will not make more progress towards constructing better infrastructure. Sure, some of the money will be squandered if the group persists in poorly thought-out initiatives, such as the 8,000 kilometre gas pipeline that is to straddle the continent.

But the bigger challenges will be to preserve the pact’s viability as a trading entity and make more progress towards a genuine free market. The competitive adaptation mechanism – that provides for threatened sectors to deploy protection – may make good sense for inefficient Argentine producers, but it is mightily frustrating for more Brazilian groups. And, as this editorial in the pro-business O Estado de São Paulo points out, it may also undermine the group’s ability to compete as a whole against China.

While Argentina has been blocking Brazilian shoe exports, those from China have been growing apace, nearly doubling in the five months to May 2006, for example.

Containing the discontent of Uruguay and Paraguay will also be a problem. Argentina’s President Néstor Kirchner still seems set to persist in his campaign to deny Uruguay the right to build a paper and pulp industry, in spite of his overwhelming defeat last week in the International Court of Justice. Environmental protesters will make their grievances known at Córdoba, after already costing Uruguay’s economy losses of $400m with roadblocks on the border between the two countries earlier this year. Argentina’s government has done nothing to prevent such protests in the past, even though they directly contradicted Mercosur’s basic aim to promote the free movement of people and goods.

Meanwhile, yet another trade dispute involving Argentina shows that it is not a propitious time to be looking for further expansion of the five-nation bloc. Chile – an associate member – is particularly vexed that Argentina has announced it will raise fuel prices in frontier areas for foreign vehicles, fearing they are taking advantage of prices half those in Chile. That comes after Argentina irritated its neighbour by directly passing on the increased cost of its own Bolivian gas imports to the gas that it sells to Chile. Bolivia negotiated a sharp increase earlier this month.

Chávez goes globetrotting

After appearing in Córdoba and a fleeting stop-over in Brazil, Mr Chávez begins a tour that will take in Russia, Belarus, Iran, Qatar and Vietnam.

Hawkish US officials hoping to alternatively brand Mr Chávez’s trip as his “axis of evil” tour might be disappointed to learn that North Korea has – at least officially – been knocked off the tour dates. Still, it wouldn’t be the first time Mr Chávez harbours a surprise. Watch for a red carpet being rolled out in Pyongyang. If he does expect criticism, even – judging by this recent piece from Larry Birns and the Council on Hemispheric Affairs – from those normally sympathetic to the Chávez camp.

In any event at least two things that will irk Washington’s officialdom. Firstly, Mr Chávez will lobby for support to win a seat on the United Nations Security Council – this tour follows a diplomatic vote-hunting safari two weeks’ ago at the African Union summit in Gambia.

Secondly, in Moscow, he is expected to ink a contract to buy 24 (or more) Sukhoi fighter jets and sign an agreement with his counterpart Vladimir Putin that would allow Russia to send a Venezuelan military officer into space.

Bad start

Alejandro Toledo has had a commendable late surge of energy in the twilight days of his presidency, personally lobbying members of the US Congress to support a trade agreement with Peru. (see the full text of the treaty)

Mr Toledo is hoping that his last-minute schmoozing will overcome opposition on Capitol Hill from minority members such as Sander Levin, the ranking Democrat on the Ways and Means Trade Subcommittee, who are concerned about lax labour standards in the Andes. (see Levin’s objections)

Unfortunately, Alan García, who will be sworn in as president next week (July 28), has shown no such leadership on the issue, flip-flopping between backhanded support and half-hearted opposition.

During the election campaign, Mr García pandered to concerns among agricultural producers in Peru by promising to revise the treaty “chapter by chapter and point by point”. After his narrow victory he changed his mind and gave his congressional bloc the green light to OK the deal. Now he is again vowing to “renegotiate” sections of the agreement.

The idea that Washington will re-open talks and change agreed terms is either hopelessly naïve or wilfully deceptive. The incoming government has been complaining about the Toledo administration handing over “time bombs” whose consequences it will have to bear.

Mr García could defuse the possibility that the trade deal will blow up in his face by stating clearly his support for the agreement and its benefits for Peru.

Careless talk

Relations between President George W. Bush’s Washington and Evo Morales’s La Paz were never going to be easy. Before he was elected, the radical Bolivian unionist warned that he would be a “nightmare” for the US.

But when Morales was inaugurated in January, there seemed to be a warming of relations. Tom Shannon, the US state department’s Latin America man, breakfasted with Mr Morales at his kitchen table in La Paz, and the incoming president welcomed him warmly in his speech in Congress. Mr Bush later called Mr Morales to congratulate him on his stunning election victory.

Since then it has all gone downhill fast. In February, Donald Rumsfeld, the US defence secretary, said Mr Morales’s election was “clearly worrisome”. Adolfo Franco, the assistant administrator of the USAID, warned in testimony to Congress last month that Mr Morales has demonstrated “inclinations to consolidate executive power and promote potentially anti-democratic reforms”.

Mr Morales’s attacks on the US have become more frequent and more grave. From having complained about Washington’s failure to supply visas to some members of his administration, in May he moved on to saying the US was planning to assassinate him. Last month Mr Morales accused the CIA of covertly training agents in Santa Cruz, in south-eastern Bolivia.

La Paz’s decision to “nationalise” Bolivia’s vast gas reserves have not helped endear it to Washington. But the worsening relationship cannot be put down to nationalisation, which has barely affected US companies. Nor has it a great deal to do with concerns over the slowing eradication of coca, the raw material for cocaine. US officials privately admit that since most Bolivian cocaine is bound for Brazil and Europe, it is less problematic for them than Colombian production.

Instead, the lost opportunity promised by the Shannon-Morales breakfast scene is due to ideological myopia and loose lips. Both Washington and La Paz have their own domestic reasons for bashing each other, and both have preferred to take a strong line rather than compromise.

Mr Morales’s paranoia is probably egged on by his increasingly close relationship with Hugo Chávez, the loudmouthed Venezuelan leader who has swaggered through Bolivia frequently since it swung into his “axis of good”.

Mr Bush’s monofocus on trade as the only way to engage with Latin America could backfire in Bolivia. The administration has made it clear it will not extend beyond this year the tariff preferences currently enjoyed by South America’s poorest country. That is designed to persuade La Paz to follow a more market-friendly course – but could play into anti-American sentiment.

Mr Morales has formally asked the US to extend the preferences for another year, something Washington looks likely to refuse. That may enable him to point another accusing finger at the Bush administration when Bolivian industry starts to suffer.

Kirchner’s power grab?

The most noteworthy of the controversy surrounding President Néstor Kirchner’s proposed new powers is how little effort Argentina’s leader makes to justify the reform and how much he spends lambasting critics. Within the last week, Mr Kirchner has been “pained” by the opposition Radical Party, the conservative newspaper La Nación and other quarters. Yet, the reforms have been justified rather blandly as “putting things in order”

On the surface at least the laws do give genuine cause for concern. Steamrolled through the senate last week and due to be approved by the lower house possibly as early as Wednesday, the legislation allows the executive to alter the budget without congressional approval. Other new laws increase the government’s scope to use emergency executive decrees. There appears to be little justification. The economic crisis that justified the original budgetary short circuit (introduced in April 2001 at the behest of Domingo Cavallo) has long since passed, for example. Indeed, on the contrary, following the controversial law undermining judicial independence earlier this year, it all reinforces the worrying sense that Mr Kirchner is out to concentrate to power.

A new defence minister in Colombia

Juan Manuel Santos is gearing up for his first day behind the desk as President Álvaro Uribe’s minister of defence in Bogotá.

Mr Santos takes the helm of the defence ministry – arguably the most important post in the Colombian cabinet – as a reward for his leading role in two crucial political campaigns: Mr Uribe’s recent landslide re-election victory and, in March, elections that handed the president considerable control over the legislature.

In the past, Mr Santos has been an outspoken critic of Mr Chávez, arguing that the Venezuelan leader poses a threat to Colombia’s national security, both because of his arms purchases and because of Mr Chávez’s overt international ambitions. Hawks in the Colombian military’s top brass are likely to reinforce that view.

Yet Mr Santos is a shrewd politician and undoubtedly loyal to the president. Mr Uribe has signalled that, despite the concerns, it is a pragmatic stance towards Mr Chávez that best serves Colombia’s national interest, rather than shooting from the hip.

Edited by Richard Lapper. Notes by Richard Lapper, Benedict Mander, Hal Weitzman and Andy Webb-Vidal

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