LAUGHTER AND TEARS
December in Latin Letter (Into the Unknown – issue 222) I expressed the view
that Brazil, rather than the traditional bayonets associated with those clinging
to power, had the potential of making Perú’s president, Ollanta Humala, sit
uncomfortable on his throne. Not
just Perú. Henry Kissinger
commented some 40 years ago that Brazil’s very size and belief in its own
uniqueness might one day make it more feared than loved; that remains to be
seen, but what has become apparent is that Brazil’s ambitious reach extends
far beyond the region. It sees
itself as having a world role to play.
the country has more diplomatic missions in Africa than the United Kingdom,
which may come as a surprise to many readers when one reflects on the historical
influence and presence the UK has had there; think of Cecil Rhodes and his dream
of a Cape to Cairo railway, consolidating British interests on the continent.
Not only that, Brazil recently replaced the UK as the world’s
sixth-largest economy. The
unemployment rate is at an all-time low of 4.7 per cent, comparing favourably
with about 8.5 per cent in the United States of America and nearly 10 per cent
in Europe. In fact, when Latin
America is taken as a whole, the region’s unemployment rate (a 21-year low)
was 6.8 per cent in 2011.
many counts Sao Paulo’s financial sector outshines Wall Street’s, with the
market value of just one bank, Itaú, exceeding those of Goldman Sachs and
Morgan Stanley combined. In 2011,
“Brazil risk” – the cost of protecting the country’s debt against
non-payment – dropped below that of the US and at the same time it received
Foreign Direct Investment of US$81 billion, having only attracted US$37 billion
in 2010; what’s more, the ratio of external debt to Gross Domestic Product in
2011 was a healthy 12.8 per cent.
further indication that Brazil is steering its own course, besides its overtures
in Africa, is the fact that it is in the forefront of creating regional
alliances, in particular a grouping of South American nations known as the South
American Union (UNASUR). The other
regional power, Mexico, has been excluded from this union and, additionally, as
Brazil draws other countries into continental infrastructure projects, some
cries of imperialism have been heard. UNASUR
is concentrating not only on cross-border projects but defence co-operation as
well and it is seen as a means also of isolating Hugo Chávez, the Venezuelan
president, who launched in Caracas last December the Community of Latin American
and Caribbean States, with 33 countries as members without any US or Canadian
was plenty of rhetoric at the inaugural meeting in Caracas, but little in the
way of concrete results. The
Bolivarian Alliance for the Peoples of Our America, which he established 10
years ago, lives on with the explicit aim of shielding its members (Cuba,
Bolivia, Nicaragua, Ecuador, Dominica, St. Vincent and Antigua) from the tyrant
he sees on the other side of the Rio Grande.
Some trade has been conducted between members of this alliance, (US$5.8
billion in 2010), but most of it has centred mainly on subsidised shipments of
Venezuelan oil; both Syria and Iran have observer status.
an effort to counter Brazil’s growing influence, Mexico (not, as I mentioned,
part of UNASUR) is actively promoting a trade bloc called the Alliance of the
Pacific which will have its first meeting in June in Chile, following a summit
last December which was held in Merida, Mexico, with participation from
Colombia, Perú, Chile and Mexico (Panamá was an observer).
The Alliance has plans to combine their stock exchanges and work on a
timetable for the eventual elimination of tariffs on goods and services between
2020 and 2025. Colombia’s
trade minister, Sergio Diaz-Granados, sees membership of this alliance as
essential for developing intra-regional trade but, more importantly, it will
boost Latin America’s participation in the Asia-Pacific rim which he believes
will be the largest and most dynamic economic zone in the next 20 years.
to the Venezuelan president’s discomfort, President Barack Obama has his own
plans to create a trading bloc along the Pacific rim which will include Mexico.
He announced at the end of last year that this will mean the dramatic
expansion of the present nine-member Trans-Pacific Partnership (TPP).
At the moment the TPP does include Chile and Perú, but the intention is
to add Japan, Canada and Mexico. All
three countries have expressed their interest and this new Asia-Pacific trading
bloc would eliminate customs duties and set common standards for investments,
labour and environmental regulations. It
is difficult to assess just what impact this would have on world trade should
this plan reach fruition, but it would surely be considerable.
Ferrari, Mexico’s economy secretary, has referred to “an era of trade
blocs” that will begin to replace the existing system of bi-lateral free trade
agreements (of which there are some 300 at the last count) and he is very
enthusiastic over Mexico’s participation in the TPP.
Part of President Obama’s argument for throwing his full weight behind
the TPP is that the US is “a Pacific country”; whether folks in Boston or
Baton Rouge on the East coast quite agree is another issue anymore than swathes
of voters in the US would agree with him if Pacific was lower-case and described
the country’s current foreign policy approach.
UK may not be a Pacific country and nor is it able to match Brazil as far as its
diplomatic presence in Africa goes, but it recognises the importance of opening
doors for trade in Latin America. Not
surprisingly, a new consulate is being opened in Recife, located in Brazil’s
north-east where development is growing at a fast pace.
Extra diplomats are also being sent to embassies in the capitals of some
of the larger Latin American countries and William Hague, Britain’s foreign
secretary, has stated that there is no question of retreating from the region;
quite the opposite. This will be a
return to old haunts for the UK which played an important part in Latin
America’s independence struggles. One
independence struggle, however, which persists is the one over the Falkland
Islands where sovereignty is claimed by both the UK and Argentina and which led
to a war 30 years ago this month which Argentina didn’t win.
ten years of fast growth, Latin America now accounts for nearly 9 per cent of
the world economy. Even so, the UK
only supplies 1.5 per cent of the region’s imports; in 1808 the figure was 40
per cent. By contrast, as one
example, Brazil imports more from the Netherlands than it does from the UK.
So the UK has a lot of work to do if it has any hope of real success,
especially with the proliferation of all these regional alliances and the
anticipated “era of trade blocs” – not to mention President Obama’s
grand Pacific ambitions. The
durability (if not the final number of participants) of the TPP is not in any
doubt, unlike some of Latin America’s trade blocs which might eventually
resemble ice blocks because they could eventually be snared by politics and
self-interest, melting away to nothing.
is certainly a sea change since 11 Latin American countries took the first steps
towards forming a regional common market in 1960, the aim being to create an
all-embracing Latin American Free Trade Agreement.
Wags in Washington DC at the time turned the acronym for the agreement
into a joke and vowed that such a plan would bring more tears than LAFTA.
But 50 years on the tables have been turned as prosperity has been sapped
from the US and trade across the South American continent has become a force to
be reckoned with.
last November’s Latin Letter (Dances of Destiny – Issue 221) I had written
about Juan Fangio, the famous Argentine racing driver who won the grand prix
world championship five times and whose attributes were many.
He negotiated sharp bends carefully and he perfected “the four-wheel
drift” which was a controlled skid for taking corners at high speed.
Fangio, however, always said that you shouldn’t go faster than you have
to. Not bad advice – whether you
are on the race track or racing forward with trade negotiations – and Latin
American countries could do worse than emulate some of the Argentine’s
philosophy and tactics.