Photo Jonathan Blair

Tuesday, August 2, 2011

Why Latin America's Pacific bloc should worry Brazil

Last week-end, Colombian president Juan Manuel Santos was visiting Felipe Calderon, his Mexican counterpart. The meeting was explicitly linked by the leaders to the "Deep Integration Agreement" with Peru and Chile that was launched last April through the "Lima Declaration." Progress along those lines has to be worrying for Brazil, because if it gains any traction, the resulting bloc of fast growing and relatively large economies would represent a real alternative to Mercosur, with open economies and healthy relations with the United States, unlike poor, troubled and increasingly isolated Alba.

Checking a few numbers is a bit shocking in fact: both the total GDP of the Pacific bloc and its average GDP per capita (ppp) are slightly larger than Brazil's and so is the population of the bloc. Even its military budget is comparable, if slightly lower.

As I have noted earlier, Peru under Humala is a bit iffy and seems to be very keen on better relations with its big amazon neighbour. Moreover, Brazil "has" Mercosur, and once that bloc--essentially Argentina--is brought into the equation, things look much better.

Now, in 2011 Mercosur is "celebrating" 20 years of existence, but nobody seems to be particularly keen on celebrating. Those 20 years have seen trade grow, but since the mid-1990s, even trade within the bloc is down in relative terms. As to regional value chains, the real nuts and bolts of integration today, they are still a dream. Argentina and Uruguay are patching up their paper-mill war, and nobody seems to be particularly keen on deepening the relationship and moving towards coordinated policy. Many in Brazil, consider in fact that Mercosur is an obstacle to an effective trade policy, and things will get worse once Venezuela is finally admitted--Paraguay's senate at some point will have to yield.

What is left is UNASUR which, very cleverly for Brazil--and Venezuela-- excludes Mexico and guarantees Brazil's prominence. But UNASUR is not Brazil's thing. In fact, the secretary-general of the Union, Colombia's María Emma Mejía, has declared, not a bit mischievously, that Brazil cannot become a power without support from the region.  

Add to this the negative perception of Brazil among its neighbours, documented recently by the Fernando Henrique Cardoso Foundation, and you get a sense that Brazil's South America project, launched in 2000 by Cardoso, but aggressively pursued under Lula, could well be unraveling.