OPTIONS MIGHT BE NEEDED

Macri heads to Davos summit as major BRIC partners exhibit economic clouds ahead

Neither supporters nor detractors are surprised by President Mauricio Macri’s planned attendance of the World Economic Forum in Davos later this month. Both sides will agree that his views have many points of contact with the free market credo of the meeting, which was not the case for his two predecessors that made a point of giving Davos a miss.

However, it would be wrong to place too much emphasis on the politics of Davos. The last Argentine president to attend the summit was Eduardo Duhalde back in 2003, and his visit had less to do with political affinities (possibly not too strong) than with the main purpose of delivering the message that Argentina had put the 2001 crisis behind. Duhalde tried then to emphasize that the country was, once again, an attractive option for investors. Today’s Argentina is a far cry from 2003, but foreign investment remains a top priority.

There is something else which is likely to be among the Government’s priorities — having more options in terms of international partnerships, something which was clearly explained by Foreign Minister Susana Malcorra. To this end, the government is working hard in repairing the bridges with the EU and the US, but — at the same time — it continues sending friendly messages to the partners it inherited from the Kirchner presidencies. In short, speaking about options, the more the better, which seems a wise decision in view of the not-too-optimistic forecasts for 2016.

A very recent World Bank report expressed concern about this year’s global economy. Much of the concern is focussed on the performance of the biggest emerging economies, namely Brazil, Russia, India, China and South Africa. Should these five countries, also known by the acronym BRICS, suffer a slowdown in their economies, the impact on the rest of the emerging markets would be immediate. And this, in turn, would have negative consequences on the financial markets, creating the conditions for “a perfect storm.” Cristina Fernández de Kirchner invested heavily in the partnership with the biggest emerging economies, particularly Brazil, China and Russia. But, currently, the particular circumstances of each of these countries make the partnerships less promising than years ago. This does not mean that they are over, but it clearly makes the search of more options quite advisable. Davos seems a good place to find such options.

Brazil is one of the obvious priorities in terms of partnerships. Nevertheless, things are not looking good for the big neighbour. Its economy is expected to shrink by eight percent in 2016. And the price of the country’s commodity exports has dropped by 41 percent in the last four years. As a result, two credit rating agencies have drastically dropped Brazil’s debt issues to the lowest category, leading to “junk” bonds. In addition to its economic woes, Brazil is in the midst of a serious political crisis triggered by mega-corruption scandals and general dissatisfaction. Meanwhile, Dilma Rousseff’s approval rating in the opinion polls reaches a meagre 12 percent.

None of this means that Argentina’s partnership with Brazil is over, but it does hint at a likely drop in its bilateral trade and investment.

China is another one of Argentina’s important partners which also seems to be in trouble. Last week, the Chinese stock exchange suffered another dramatic drop, which had an immediate impact on the rest of the world’s markets. Additionally, more devaluations of the Yuan are expected. The international financial institutions are keeping a careful eye on China. Especially because many observers agree that the most worrying aspect of it economy is not what is known but what is not known. They do not trust China’s data about its growth rate which, they argue, has been exaggerated. Again, a partnership with question marks.

Soon after being sworn in, President Macri had a phone conversation with Russia’s Putin. They exchanged commitments of continued cooperation. But Russia has big problems of its own. First and foremost, the drop in the price of oil is hitting the Russian economy very hard. In spite of this, Vladimir Putin seems determined to restore Russia to its old glory, which may be making matters worse. Part of this determination shows in the country’s current conflicts, Crimea being the best example. The US sanctions in terms of food exports are a big problem for Moscow and the same can be said of the sanctions imposed by the EU. All this could affect Russia’s value as a partner.

At this point, this writer would like to correct a mistake which slipped into the column published on January 4. Unlike the US, the EU sanctions do not include an embargo on food exports to Russia as reported. Instead, the EU’s sanctions include the ban on imports of products originating in Crimea into the EU as well as exports of certain goods and technologies to Crimean companies.

@andresfederman

CREDITS: BUENOS AIRES HERALD

THE MERCOSUR ROUTINE

Situation can force despair or trigger creativity

It is Mercosur Summit time again. This time in Paraguay. The presence of the new Argentine president Mauricio Macri is likely to be one of the most attractive items for the media. After all, he represents a significant change after 12 years in which Argentina espoused a totally different political regime under the Kirchner presidencies.

And there is an additional side-line: the current confrontation between Macri and Venezuela’s Maduro might provide some interesting headlines and reports from the accredited journalists. Apparently the Argentine president will raise the issue of human rights and political freedom in Venezuela. And as already reported in this column, the Venezuelan reply is unlikely to be friendly.

The skirmish is bound to trigger a debate in Argentina. Kirchner supporters will immediately accuse Macri of being part of a conspiracy to destabilize a democratic and popular (populist?) leader. The other side will reply that Human Rights do not have an ideology and that the same standards should apply to everybody,

Moreover, such a debate will rekindle a discussion which is discreetly taking place among some political analysts. They are wondering if Macri’s PRO means that a new kind of modern — and democratic — model of centre right political party is being born in Latin America. They are thinking in terms of a political format which can make social and human rights objectives, coexist with market oriented economic policies which — in addition — include some market regulation aimed at expanding democracy to aspects which — up to now — were a monopoly of the progressive side of the political spectrum.

In any case, should the controversy between the two presidents erupt, it would be simply one more obstacle in the way of this particular summit achieving much. There are others. First, there is the fact that the main partner, Brazil, is in the midst of a deep political and economic crisis. Not the best position to enter new long term commitments. In the case of Argentina, a number of sources suggest that different local government departments from within and without the Ministry of Foreign Affairs still have to agree on who is going to do what, and that, currently, there seem to be other priorities for the country’s economic and diplomatic teams. Some more or less as important as Mercosur but definitely more urgent.

This whole scenario would change dramatically if there were a solid hope about the possibility of finally reaching a free trade agreement with the European Union. The issue has been around since the birth of Mercosur approximately two decades ago. Both sides blame each other for the failure. And they are both probably right: simply put, there are too many interests to harmonize. Many say that this single item is the most frustrating issue on the Mercosur menu.

The stagnant Mercosur does not affect the five member states in the same way. Possibly, in the case of Venezuela, the political crisis simply pushes Mercosur out of the agenda unless it has to do with politics. Brazil and Argentina have a problem but have other economic and trade conflicts which create a more urgent and focused agenda. which also offers more options to explore. The two smaller partners, Uruguay and Paraguay get the short end of the stick. Mercosur limits their options and does not offer much in terms of compensation.

This situation can force despair or trigger creativity. Luckily, in the case of this week’s summit it has been the latter.

The Paraguayan Deputy FM announced last week that a list of approximately eighty non-tariff barriers for products manufactured and traded within the bloc had been identified. The idea is to scrap the antidumping measure and countervailing duties. This would ease up Uruguay and Paraguay’s life in Mercosur, allowing for increase trade, and, perhaps, more foreign investment.

It would be a good way of starting 2016. Not a break away from routine, but an interesting step in the right direction.

@andresfederman

CREDITS: BUENOS AIRES HERALD

BRICS OR BRICSA?

CFK’s desire to join the group, in vain or in vanity?

At an event which took place on September 10, President Cristina Fernández de Kirchner voiced — once again — her hopes that Argentina can join Brazil, Russia, India, China and South Africa as part of the BRICS. This rather loose association of emerging countries triggers — among many Kirchnerites — a vision of a strong alliance that will challenge the existing international economic order.

A further proof of the importance that CFK assigns to joining the BRICS, is that she made a public display of handing the job of advocating for Argentina’s admittance into the group to former Brazilian president Luiz Inácio Lula da Silva, who was visiting the country and present at last week’s event. In her speech, CFK told Lula that she hoped that BRICS acronym would turn into BRICSA, marking Argentina’s membership of the club.

However, although it might be seen as an exercise in nitpicking, it is worth noting some objections to CFK’s initiative.

BRICSA NO WAY

Last year, Russia invited the Argentine president to attend the BRICS’ summit that took place in Brazil. This triggered the expectation that Argentina would be invited to join the group. But it turned out that it was a mere invitation to visit the club and not a membership offer. At the time, Putin’s initiative seemed to have created some discomfort amongst Russia’s partners (Brazil?) because — in the end — the guest list was hastily expanded to include other UNASUR guests. In addition, CFK did not have the satisfaction of seeing the issue of holdout/vulture funds, which was the main focus of her speech, reflected in the meeting’s closing statement. Many saw this as a bit of a dismissive gesture in terms of summit etiquette.

Last year's speculations (illusions?) about a possible invitation to Argentina to join the club were politely but clearly rejected by several BRICS representatives, including Putin himself. The message of this year’s summit was quite similar.

The Russian Deputy Foreign Minister Sergei Ryabkov, told the press that “BRICS is not an organization, it is a collection of countries that are united by national interests. We think that the current format is an optimal one … After South Africa became participating state, the leaders decided to declare a moratorium for accepting new members.” True, he did include in his statement the line “we do not exclude anything. What will happen should be driven by national interest.” However, this last phrase seems to be an expression of diplomatic politeness more than a statement about the near future.

In fact, the original BRICS were born as BRIC, because they did not include South Africa. The four founding members, Brazil, Russia, India and China have a number of things in common. Possibly the most relevant ones are these countries’ large populations and the fact that — together — they account for a significant proportion of the world’s GDP. But, say many commentators, there was something missing. Only four of the five continents were represented. Africa was absent. And this encouraged the inclusion of South Africa in 2010.

South Africa — like Argentina — is not in the big league in terms of GDP or population. Its membership derived from the political need of having all five continents represented.

CFK’s illusions

Unfortunately for Argentina, the Latin American place is already covered by Brazil. Accepting Argentina into the club would force the BRICS to include four more members, one from each non-Latin American continent. Whilst four big partners plus a South African “smaller brother” make the group relatively easy to manage, ten members of different size in terms of both GDP and population would complicate — and perhaps paralyze — the group. This is perhaps the main reason that thwarts CFK’s illusions.

But this is not the only reason that makes the president’s push rather useless and untimely. There is also a local politics angle.

The president is almost at the end of her mandate. And joining the BRICS or, for that matter, any other international group or organization seems to be a decision that should be left for the next president to make. True, Daniel Scioli has a very good chance to be elected as Cristina’s successor and he is the FPV candidate, which she blessed. But, even if Scioli is totally in agreement with her views, she is undermining his future presidential authority by making commitments in his name.

If joining the BRICS is such an FPV priority, then it would have been a better idea to allow Scioli to voice the request to Lula, especially because he happened to be present at the event. In fact it might have provided Scioli with a good opportunity to publicize what he plans to do when he becomes president. Moreover, this might have offered him a competitive advantage given the fact that clear definitions are conspicuously absent from the messages of the three main presidential

candidates.

CREDITS: BUENOS AIRES HERALD

PUZZLES FOR THE NEWCOMER

Relationships will be far from simple and straightforward for the new administration

Frequently, foreign policy is not a key agenda issue at election time, and the forthcoming presidential elections are no exception. However, foreign policy advisers to the three key candidates have offered some clues in several talks and press interviews. There seems to be a confluence of opinion with regard to rapprochement with the United States (US) and the European Union (EU). However, there also seems to be agreement among the advisers about protecting current relations with China as well as Russia.

And while it’s true that there are differences in the level of priority that each candidate assigns to these objectives, in all cases they are at the top of their agendas. And they all ascribe great importance to the relationship with Brazil in particular.

This is very good news, especially given the politicians’ harsh controversies about the national agenda, partly due to the needs of political campaigning but mainly reflecting the profound rift in Argentina’s society. Continuity, predictability and rational players are always a welcome asset in foreign policy.

The bad news for those that will sit inside the Casa Rosada and the Palacio San Martín after 10 December, is that existing and, perhaps, future close relations with the above named countries will be far from simple or straightforward.

Close to home, Brazil, our next door neighbour, is stomaching an explosive mix. The country’s very poor economic performance of late, which is widening its deficit gap, combined with the saga of the corruption scandals — in which a number of government officials and lawmakers are involved — has resulted in a dramatic drop in the president’s public-approval rating. She is also weathering strong political pressures from different — and often opposing — sectors ranging from the São Paulo industrialist lobby, to citizens indignant with corruption, in addition to the social pressures derived from increasing unemployment.

It is in this context that Argentina has to reach agreements on bilateral trade, as well as the way in which Buenos Aires and Brasilia will go about negotiating on the EU and Mercosur fronts. Whilst everybody agrees that both foreign ministries have very adept officials, the fact is that both governments might be forced, in the near future, to prioritize their own internal interlocutors at the time of negotiating with each other. This sort of scenario can be very frustrating for all parties involved.

The China question

Overseas, China, has recently been in the news because of the weakness of its financial markets. But this is only part of the problem, and perhaps the least significant part. The way in which China commemorated the recent Victory Day holiday (against the Japanese), with a very impressive military parade, is sending out the clear signal that — despite the headlines in the global press — its aspirations of being a major power remain intact. Moreover, some observers have voiced suspicions about the possibility that the excessive fall of the Chinese currency was self-inflicted and perhaps a deliberate move aimed at showing off its ability to be a financial nuisance.

As I’ve stated previously in this column, China’s real objective is to increase pressure on the IMF in order for the Yuan to be admitted as part of that organization’s basket of currencies. The SDR, which stands for Special Drawing Rights, now includes the US dollar, the Euro, the Swiss Franc, the Japanese Yen and the Pound Sterling. The IMF says that it will only accept China into that club when the Yuan is traded on the free market, without any government intervention. This looks unlikely to happen very soon.

In addition, China continues to confront the US through quite unsubtle gestures. The guest list for the Victory Day military parade was a roll-call of heads of state that are unfriendly toward the US. Predictably, Russia’s Vladimir Putin and Venezuela’s Nicolás Maduro were quite prominent guests. They are also part of this country’s current circle of friends. Less prominent was Argentina’s Amado Boudou. Please note that it is up to the reader to decipher whatever message may be gleaned from this last reference.

Another Chinese gesture is the recent opening of a Yuan clearing bank in South Africa, thus giving Beijing a somewhat privileged position. This happens at the same time when Nelson Mandela’s original party, the African National Congress (ANC), has increased the volume of its anti-US rhetoric. Next month, the ANC is expected to issue a foreign policy statement blaming Washington for about everything which was and is going wrong in the world, from the Tiananmen massacre in Beijing 26 years ago to the current conflict involving Russia in Kiev.

Argentina’s foreign policy after 10 December will be to pursue a double objective of rapprochement with the West and maintaining and strengthening ties with the East, all set against this very complicated background. While relations with Brazil do not imply geopolitical choices between two sides, current and planned ties with the different players definitely does.

Optimists will call this scenario a challenge for the new administration. Pessimists (or realists?) will call it bad news. Make your choice.

CREDITS: BUENOS AIRES HERALD

RISKY PARTNERS

Argentina faces a problematic last quarter as it must keep an eye on two giant troublemakers

Argentina has always been a country in which power is widely concentrated in the hands of the president. And some would argue that Néstor and especially Cristina Fernández de Kirchner have taken such concentration to the extreme.

Another interesting point about the current president is that — less than three months away from ending her presidential term — she is far from losing her influence. She has not become the weak, lame-duck president that those in the opposition had predicted and hoped for. Fernández de Kirchner still continues to hold the political initiative and it is quite evident that her ministers and deputies seem quite reluctant to take the initiative independently.

As for civil servants, they reflect this too, and depend too much on the orders of their political masters. Those enamoured with this system will tell you that it is the only way to make sure that the decisions taken respect the wishes of the voters, or — more dramatically — “the people.” But they are wrong.

The job of those who are voted into office and their politically appointed ministers is to set the guidelines and objectives for public policies, in line with their views which, in theory, are legitimized by elections. Then, their civil servants’ job is to implement them.

It is not a civil servant’s job to make foreign policy, but it is very much their responsibility to get things done, monitor relationships and make sure that existing policies are in good shape, and to sound the alarm when something goes wrong. But right now, either the alarms are not sounding accurately or nobody seems to be listening to them.

Lacking in vigilance?

Currently, criticism about a lack of vigilance in foreign policy will be immediately rebuked by pointing out to the government’s anti holdouts/“vultures” campaign at the United Nations or the battle against New York City judge Thomas Griesa. It should be noted that the battle at the UN — if won — would be a feather in Argentina’s international hat, but too late for this country. Griesa has already happened, and the situation is now more of a legal quagmire set for the next government to take over than a big target for the MFA’s efforts.

Meanwhile, although this writer hopes to be proven wrong, there are other clear and present dangers on the foreign policy front for Argentina, with the compliments of our main international partners.

One of them is Brazil. Its recent devaluations are likely to have a negative impact on Argentina, while there is also a strong pro-devaluation industrial lobby in Brazil which does not seem too friendly toward Argentina and would clearly prefer to deal with the European Union (EU) directly, leaving Argentina to fend for itself. The lobbying toward Dilma Rouseff is very serious, on account of her current political weakness and very low approval ratings. The combination of negative opinion polls and a precarious economy is likely to undermine any possible pro-Mercosur political determination in Dilma’s mind. That is, if there is any left. Especially because sectors in Uruguay and Paraguay seem to agree with Sao Paolo’s objectives, which are far from committed to Argentina’s views.

Chinese aspirations

And then there is China’s devaluations and its effects on Argentina. The immediate consequence will be that Chinese imports will gain competitiviness, so the prices of Argentine commodities will drop. However, perhaps these are not the most serious problems. CFK has — in a quite ostensive way — aligned Argentina with China as a “strategic partner,” which led to long-term contracts and commitments, not only in terms of trade or financial aid. But many international observers are now suggesting that the relevance of the recent devaluations is more political than financial.

It so happens that China occupies the second-highest position in terms of world trade, but its currency, the yuan, occupies a meagre ninth position in terms of internationally traded currencies, something that does not make the Chinese Government happy. Beijing seems determined to change that, in order to receive the prestige of being an internationally traded currency, on a par with the US dollar, the euro, the Swiss franc the Japanese yen or pound sterling. These are the five currencies included in the “basket” which makes up the IMF’s foreign exchange reserve assets, the Special Drawing Rights. China wants to join the prestigious club. The International Monetary Fund (IMF) though has closed the door on account of the fact that the yuan is not traded in free markets. As a result, say some, China might have attempted with is three devaluations in a row to show its capacity for damage to the world.

A currency war? We should hope not. It does not seem prudent to be the strategic partner of a nation at war — even if only financially — with the IMF and the big capitalist countries.

@andresfederman

CREDITS: BUENOS AIRES HERALD

CHINESE STRINGS

Whatever happens at the polls, some ties won’t break

In the last 12 years, first Néstor Kirchner and then Cristina Fernández de Kirchner have introduced drastic changes in Argentina’s foreign policy alignments.

It is quite noticeable how China and Russia have replaced the US and Europe as Argentina’s non-regional partners of choice — and the way in which this country has strengthened its ties with countries like Ecuador and Venezuela. All this is reflected in the formal political statements, in the narrative and — quite clearly — in Argentina’s trade, investment and financial relations.

There is a general agreement on the fact that China is not longer a communist state. But there is also a consensus that it would be equally wrong to say it is a capitalist state comparable to the US or the EU countries. It is also quite clear that, even if the cold war is something of the past, China — as well as, but not always together with Russia — competes in geopolitical terms with the US and its European partners. And that such state of affairs is very noticeable in Latin America.

China’s LatAm role

One of the most significant elements in this scenario is the new role currently played by Beijing in the region’s finances. In addition to its financial involvement in Brazil, China is nowadays the largest source of funding for Venezuela, Ecuador, and Argentina. And Chinese developmental banks’ investments in Latin America are larger than those of the World Bank and the Inter-American Development Bank.

Last week, Venezuela’s government triumphantly announced that it had obtained a new loan from the Chinese government. It was possibly the only piece of good news for Caracas, at a time when the country is facing a new crisis of violent demonstrations and lootings. However, the news on the loan was not too surprising — especially because the Chinese lender expects to be paid back in oil and not in cash.

Commodities exchange

A good percentage of the Chinese financing in Latin America is linked directly or indirectly to other deals that have to do with commodities — oil from Venezuela, agricultural exports from Argentina — or, as it happens like in Ecuador, with projects in which there is a significant involvement of Chinese companies.

Consequently, countries like Venezuela, Ecuador or Argentina are likely to have an easier life at the time of negotiating finances. Which, when combined with trade or investment, offer more room for flexibility. The more elements there are on the negotiating table, the easier it is to exchange concessions. Much more so if politics are part of the equation.

Financial negotiations with China often have an even more important advantage for these three Latin American countries, which share unorthodox economic policies that are often anathema for bankers. The latter’s priority is profit, and, therefore, they need to satisfy their boards, shareholders, auditors and regulatory authorities. By contrast, state negotiators are held accountable by political masters and their objectives. And these will often prioritize the political over the financial gains involved in a loan or a joint venture.

Future foreign policy

This has worked well for both China and Argentina during the Kirchners’ presidencies. So the question is what will happen after December 10.

Opinion polls suggest that the only two real competitors are the FPV’s Daniel Scioli or — through the intricacies of a two-round election — PRO’s Mauricio Macri.

In the last few months, Scioli has kept busy making clear his alignment with CFK’s policies. He was so successful that the purists within FPV who rejected him as a right-of-centre infiltrator shifted their narrative to a warm support. The fact that his vice-presidential candidate is Carlos Zannini —who is considered to be one of the government’s key strategists — has likely helped.

Scioli’s competitor Mauricio Macri has also been busy explaining that he agrees with, and will not drastically change, some of the basic tenets of this government’s policies. He mentioned social benefits and nationalizations. But he did not include foreign policy in that list.

In any case, drastic changes in Argentina’s international alignments would not be easy. True, it is relatively easy to change the rhetoric, or the statements in international organizations which a nation-state endorses. It is less easy to move away from financial commitments or trade patterns.

Argentina would need to find new lenders and new clients for its exports. None of this happens at short notice. So, whatever happens in the presidential election, Argentina’s ties with China are likely to remain strong for the foreseeable future.

@andresfederman

CREDITS: BUENOS AIRES HERALD

LAST CHANCE FOR THE MERCOSUR?

The reasoning behind Uruguay’s breach of protocol

It all happened last week. On Monday, Walter Cancela, Uruguay’s Ambassador to the European Union (EU) belied reports suggesting his government was in favour of the Mercosur entering free trade agreements with the European bloc, without waiting for the conformity of all member countries. Brazil’s Dilma Rouseff seems to be choosing this road as well.

Although not specifically mentioned in public statements, the dissident member states are Argentina and Venezuela.

On Thursday, 4 June, Uruguay’s Foreign Minister Rodolfo Nin Novoa told the press that Cancela was wrong, that he had spoken out of turn and that foreign policy decisions are made by the president, Tabaré Vázquez. Consequently, Nin Novoa said, Cancela would be removed from the job. Later, the foreign minister then toned down Cancela’s “punishment,” explaining that rogue ambassador had been slapped on the wrist but not sacked.

Believe it or not, this succession of events was quite extraordinary. But surely they weren’t the end of the world. Having said that, it is not the done thing for a government to publicly sack or even tell off an ambassador posted abroad. Surely all governments reprimand or sack their diplomats, and possibly quite frequently. But they do it silently and not in the public eye. In other words: much more diplomatically. (Pun intended.)

The politics behind the affair are relatively easy to explain. Although President Vázquez belongs to the same party as his predecessor José “Pepe” Mujica, it is public knowledge that they belong to different factions within the Frente Amplio, and do not see eye-to-eye on many issues.

Moreover, Vazquez is known to be even less enamoured than his predecessor with the current Argentine government. And politicians from Uruguay — as well as those from Paraguay — have been lobbying against what they have seen as Argentina’s feet-dragging on an agreement with the EU. As in the case of Uruguay, there is no love lost for the Mercosur in Paraguay.

But — being the smaller members — both Uruguay and Paraguay were lonely voices in the Mercosur desert. Until quite recently, that is, when — perhaps pushed by her country’s current economic difficulties — Rousseff altered Brazil’s traditional position. She is now in favour of a “two-speed” agreement. In other words, member states should have the liberty of speeding up or delaying free trade negotiations with the EU, according to the Brazilian president.

Good news for Montevideo

The change in Brazil’s policy was good news in Uruguay. In addition to the president’s position, the opposition shares the negative perceptions of Mercosur. There are, obviously, some relevant exceptions. Walter Cancela is one of them. But he is a legacy of Mujica’s time. In fact, the latter was quick to join the political fray within the Broad Front, and, on June 4, he went public voicing his disagreement with Vázquez’s position. Which explains his follower, Cancela’s, rather undisciplined ways.

There is some speculation that the disagreement about the Mercosur’s direction, between incumbent president and predecessor has also occurred in Brazil, between Rousseff and former president Luiz Inácio Lula da Silva. Who — by the way — met President Cristina Fernández de Kirchner last Saturday to discuss unspecified “regional issues.”

If they chatted abut Mercosur, and were sincere with each other, they might have agreed that, unfortunately, the Mercosur bloc is at present far from a shining success story. The list of mutual complaints is quite long. The current disagreement between Argentina and Brazil about automobile trade is just one case in point. But, if the two big partners find it difficult to compromise with each other, there is obviously very little hope for the smaller and weaker partners. They simply lack the necessary leverage

Likewise, Mercosur does not seem to be very apt as a negotiating tool with third parties. The discussions about a trade agreement with the EU started exactly 20 years ago. And it seems quite clear that nothing, or almost nothing, has been achieved. True, the blame should be placed both sides of the Atlantic Ocean. But it is also true that other regions have managed to overcome difficulties and agreements with the EU are now in place.

The Washington effect

But what is even more worrying for the “two-speed” advocates is the fact that the EU seems likely to conclude a free trade agreement with the US quite soon. Does this matter? Yes. Other trade partners could suffer serious damages. And it seems that many decision makers in Brazil, Uruguay and Paraguay are beginning to feel that the Mercosur is more of a liability than an asset. And that it is not delivering.

Some even say that the dream of the 1980s needs a complete overhaul or that it should be replaced by something different and more up to date.

So much so, that they are prepared to risk serious damage to the bloc and its future, or the wrath of reluctant partners like Argentina and Venezuela, in order to move forward over an agreement with the EU, which potentially seems to be more beneficial.

Possibly, this explains the Uruguay breach of protocol this week with their ambassador in Brussels, in order to avoid sending the wrong signals to the possible EU partners.

@andresfederman

CREDITS: BUENOS AIRES HERALD

CHINA: BEYOND THE GOOD NEWS

Latin American influence being wrestled away from US

Last week our Brazilian neighbours and brothers concluded their own special strategic partnership package deal with China. Predictably, and given the difference in the size of both economies, the numbers involved in the Brazilian deal are larger than those of the deal with Argentina. But the impact on the respective economies is likely to be impressive. And welcome by both governments.

To say that “beggars are not choosers” sounds too harsh as well as unfair at the time of describing the context of these agreements. But it can be safely argued that China’s two South American partners were facing economic difficulties at the time of negotiating the deals. Which is likely to have made their negotiators a bit more concessive. Such is life, and there is nothing intrinsically wrong with that.

It is a truism by now to say that China is making a sustained effort to have a strong presence in the region. How much political power and influence will this mean for China as a world power is still an unknown factor. What is not unknown is that the Chinese advance is causing concern in Washington DC.

It could gallantly be said that, if Washington is concerned, it is its own problem. And that their opinion should not influence the policies in independent South American countries. But it would be wishful (and reckless) thinking. Even if geopolitics in the world are changing and the US — although still the most powerful world player — is not any more as omnipresent as it used to be. Washington still has considerable damage power. And it should not be forgotten that South America is in their area of influence, and not in China’s.

Moreover, many people who have strong reservations about US domestic and foreign policy, have equally strong reservations about Chinese policies. Which brings up the question about how much thought and time has gone into analyzing the unwritten agenda behind these agreements.

José Alfredo Graça Lima, the Brazilian diplomat who coordinated his country’s negotiators. said that there is no ideology behind this deal. This writer begs to disagree and respectfully suggests that the Itamaraty officer might want to take a new look at Hans Morgenthau’s classic “Politics Among Nations.” Expanding a Nation’s power in a region or in the world, is an ideology as comprehensive and all embracing as you can find.

Hopefully, the authorities in Brazil and Argentina have considered what — unwritten — power games might be associated with these agreements. Some signals are worrying.

As mentioned two weeks ago in this column, the mysterious space base being built by China in Neuquén triggers concerns in Washington as well as in some EU governments. True, China is not openly aggressive any more. But some of its moves in this part of the world make people uneasy about motives and objectives.

AntarcticA is another case in point

China’ presence in Antarctica is steadily and quickly increasing. Last year it opened its fourth research station, and a fifth one is already planned. In addition, it is investing in icebreakers and aircraft adequate to operate in the Antarctic environment. Currently, its investment in Antarctica is the highest amongst the Antarctic Treaty’s member states. Peter Jennings — formerly a senior official in the Australian Ministry of Defence — and currently executive director of the Australian Strategic Policy Institute speaks about a “deeper agenda” in China’s Antarctic policy, namely one that is aimed at securing long-term food and energy supplies.

True, the Antarctic Treaty bans any non-scientific extractive activities until 2048. But every commentator adds the caveat that the ban will be in force “as long as the Treaty does not fall apart.” And history teaches that states are willing and able to tear up treaties if they feel that circumstances justify it. Especially if they are powerful enough to do so.

And China can wield that kind of power. Not perhaps in terms of classical military strength, where the US is still ahead. But there are new warfare formats.

Many argue that in addition to air, land and sea, new battlefronts are found in the cyberspace, which is not currently a peaceful virtual territory. And many accuse China to be one of the main aggressors. Battles in the cyberspace are silent. And defeats are often keep silent, something made possible by the fact that there is no body-count to report.

Interestingly enough, neither Antarctica nor the cyberspace are conventional areas of conflict. It is very easy to avoid being pushed by a powerful partner into compromising — and hence unwanted — attitudes on traditional conflicts. It is less easy to get away from — say — a request for some friendly support on Antarctic issues or on cyberspace matters.

Hopefully, there is no small print in the agreements signed by Brazil and Argentina committing cooperation in areas which could become sensitive.

CREDITS: BUENOS AIRES HERALD

MERCOSUR: 30 YEARS ON

Bloc has failed to reach its objectives and change is afoot

The Mercosur trade bloc seems to be facing some hard facts of life and preparing to undergo trade policy changes which will alter the dreams that gave it birth. Sad but, possibly, quite necessary.

Back in the 1980s, the new democracies in the region were being born, offering the promise that — finally — Latin America would have a chance not only to live in freedom, but also to modernize and develop. The world offered new and innovative models of interstate relations but also new tools for modernization and economic growth and development. The European Economic Community, later the European Union, were the living examples. And at the time, there was no shortage of preachers of the new creed wanting to visit this part of the world to share their experience. And there were generous allocations by a number of European Governments and private foundations, who were willing to finance the promotion of the new world.

The Mercosur is the child of those endeavours. Its birth certificate is dated 1985 and it was originally called the the Argentina-Brazil Integration and Economics Cooperation Programme.

There were ambitious plans. The programme also proposed the Gaucho as a currency for regional trade. And there was more. In December 2004, the leaders of the Mercosur created a Parliament. Or at least plans for one, one that would be called Parlasur.

Three elements contributed to the enthusiasm that surrounded the Mercosur.

One was the fact that Latin American unity has been part of the South American dream since the mid-19th century. For many (some would call them “wishful”) thinkers the lack of regional unity was to be blame for weaknesses and problems. So the Mercosur appeared to be a way of galvanizing such unity.

Second, it should be noted that South America, although a relatively peaceful region (definitely more than Europe at least) was not free from tensions that sometimes led to armed conflict. In the case of the Argentine Armed Forces, for many years of the last century there were permanently reviewed “conflict hypotheses” about potential wars with Chile or Brazil, In fact in 1978, Argentina and Chile were on the verge of an open war.

And then there was the dream of economic growth through a common market.

The European mirror returned a most attractive image.

There were some successes. The rhetoric of Latin American unity provided a political base for active political exchanges and the creation of more organizations in which the four original members of the Mercosur (Paraguay, Uruguay, Brazil and Argentina) joined with other Latin American States. UNASUR is a good case in point. It has turned into an organization which can show off some successes in conflict resolution between its members.

But the Mercosur seems to have failed in its original objective of becoming a regional common market.

Some argue that the reason is the asymmetry between the two big partners and the two small ones. Both Paraguay and Uruguay complain frequently about the unfair treatment meted on them by Brazil ad Argentina. In addition, Mercosur seems to have failed to find mechanisms through which business sectors can negotiate past their differences.

Instead Brazilian, as well as the Argentine, business associations focus all their efforts on lobbying and influencing their own governments. And they expect the politicians to take hard-line positions to the negotiating table with the other side. Successes though seem to have been quite less frequent than failures. And this is showing.

There are now strong rumours that Paraguay, Brazil and Uruguay are going to start exploring trade alternatives outside the block. Not too long ago, this was anathema. But effective needs have shortened the patience of both businesspeople and politicians. Unsurprisingly, neither Venezuela nor Argentina are said to be very happy about this. So watch this space for future developments.

@andresfederman

CREDITS: BUENOS AIRES HERALD

OUR ALLIES

Moscow, Beijing seem to be more friendly — and riskier — partners

It looked to be a return to old times. The Russian government commemorated the defeat of Hitler’s Germany with an impressive military parade staged at Moscow’s Red Square. As a display of military power it was similar to those which used to take place before the Soviet Union ceased to be, back in 1989.

For different reasons, patriotic pride being one of them, many people love military parades. Children also seem to have a weak spot for these displays. However, the main objective of governments staging military parades is not the enjoyment of their citizens.

Military parades send to other governments polite messages about military strength and determination to use it if necessary. And, because of the Ukraine situation, the messages sent by Russia had clearly defined addressees: the EU and the US.

The absence of Russia’s World War II allies from the celebrations made this patently clear, bringing about a sense of déjà vu to the occasion. Which the presence — among others — of China’s President Xi Jinping made even stronger.

However, both Russia and China have abandoned Communism, which does not mean that they are now Western-style democracies. But the two countries have implemented their own — and different — style of capitalism. And they still confront with the US. These confrontations are geopolitical rather than ideological. Ukraine is not about Communism or Capitalism but about regional power, control and influence.

This is the context in which Argentina has decided that the two former communist powers are now the country’s strategic partners of choice. And this triggers concerns in the US and — to a certain extent — in the EU. There seems to be no problem with the most obvious links, namely Chinese and Russian industrial exports to Argentina and food imports from this country. But other links and partnerships continue to raise eyebrows, especially when they have to do with sensitive defence issues.

The mysterious space base being built by China in Neuquén — over which seemingly the Argentine government will have no control — does not make people in the US or the EU happy. The same can be said of Argentina’s recent announcements about military exercises to be shared with Russia.

And the quite loud rhetoric which accompanies anything related to these alliances makes matters worse.

It could be argued that the associations with the Western powers have not delivered much for Argentina. The list of complaints would be quite long and the first places would go to financial issues ranging from Judge Griesa to a quite unhelpful IMF.

There are, however, a number of risks which might outweigh the benefits of the new alliances. First and foremost there is geography. Argentina is part of the Western Hemisphere or — as some say — the US’s backyard. And, quite far away from our new strategic allies. Whether we like it or not geopolitics are a fact of life. Even if Argentina is not powerful enough to disregard this reality, some attractive features of the new alliances might appear to be.

Given the situation of Argentina’s finances, many argue that China is a much friendlier banker than — say — the IMF. And would cite the latest loans to support their case. But such loans have their own — perhaps unwritten — conditions. As many have already pointed out, China is very effective in forcing its exports on partners. Especially when such partners depend on Chinese help.

As for Russia, its own financial position is far from brilliant, which leads many to question Putin’s stability despite his current popularity. Even riskier is the fact that Russia seems committed to expand its regional power and recover its past glories. In other words, more Ukraines. If this happens, the reaction from the EU and the US is likely to be quite unfriendly. The current conflict would escalate. And the last thing that Argentina needs is to be caught in the middle of a serious political confrontation between Russia and the Western powers.

One question needs to be asked in the context of the government’s current foreign policy and alliances, and it is about Brazil. Based on geography, history and even the narrative of most Argentine politicians, Brazil should be this country’s first partner in a regional bloc which would then be entering other alliances.

An alliance with Russia or China of a regional bloc containing Argentina and Brazil would be much more effective, let alone safer. In geopolitical terms Argentina would not be a lonely ally of far-away powers but part of a regional bloc entering into alliances with third parties. Moreover, the relative power of the two sides would be more balanced. Even in sensitive issues like defence, such bloc has more choices and options and is less subject to pressure.

However, none of this hinders the legitimacy of the government’s policy or of the new alliances. True, given the relevance of the policy change, reaching a previous consensus with the opposition parties would have been a preferable way of doing things. But then, the world is not perfect.

@andresfederman

CREDITS: BUENOS AIRES HERALD

‘ROUBA MAS FAZ’

When Brazil’s patent-phrase proves untrue

Translated into English, the headline reads “he steals but he gets things done”. The copyright of the phrase actually belongs to Brazil, where it was coined. It originally referred to Ademar Pereira de Barros, a Brazilian politician who was voted twice as Governor of Sao Paulo, first in 1947 and a second time in 1963. His supporters used the line — either candidly or ironically — to rebuke criticisms about his corruption.

Possibly, this tid-bit of information will disappoint many Argentines, as well as citizens from some other Latin American states who were convinced that the phrase had originated in their own countries. In fact, in these countries, there seems to be a feeling that “moderate” levels of corruption can be tolerated if they help to speed things up and do not cause lasting damage. An example of this would be the fact that, having to pay “under the table” to speed up a building permit, is accepted as a fact of life. Moreover, many cynics would argue that the permit will trigger employment opportunities for the workers of all the trades involved in that project.

However, recent information about the impact of the corruption crisis in Brazil’s state-owned Petrobras oil company are turning around the “rouba mas faz” phrase into exactly the opposite proposition.

In this case, corruption seems to be stopping things from happening. There are companies forced to delay or even cancel projects in which evidence of corruption is found. This triggers immediate lay-offs. Moreover, since many of these projects are concentrated in the specific areas where the hydrocarbons resources are located, the new jobless cannot find alternative opportunities.

In a way, what happened with Petrobras is that the corruption bubble burst in a way not dissimilar to the subprime mortgage or the Spanish real estate bubbles. The contagion effect jumped from company to company, from government official to government official. And it became a national problem, as well as a political headache for the government.

So, in fact, Brazil’s Dilma Rouseff is paying a double political cost for the Petrobras scandal. In addition to the rage about corruption, some of the unemployed (and their families) blame her for the consequences in terms of their joblessness.

Those which — with the pretext of realism — accept corruption as a fact of life offer several explanations/excuses. The first — and crudest — is that the whole issue is being magnified by the opposition press and politicians. But there is too much evidence about the Petrobras scandal to even take this idea into consideration.

A more sophisticated narrative will argue that “things got out of hand”. In other words, corruption is acceptable as long as it is “moderate” and “acceptable” and it does not jeopardize the final objective of a government’s project, decision or policy. So rouba mas faz is tolerable, provided it delivers more energy, enhanced economic growth or any other objective linked to the common, and greater good. It suggests that — what happened with Petrobras — is simply that, unfortunately those involved simply got irrationally greedy.

The latter is the really dangerous line of reasoning because — translated into plain words — it means that something should change, if we want things to remain unchanged. Consequently, the excessively greedy culprits of this particular scandal are crucified and allow the “rational and moderate” briberies to remain in place as part of the system.

Unfortunately, illegal payments cannot be monitored or regulated so as to keep them within a “reasonable” price range. Whatever “reasonable” means in terms of bribes. No matter what people have been led to believe, taking bribes -whatever their amount - is a criminal offense. If a petty robber gets away, he is likely to become a serious robber. The same happens with government officials as well as those who bribe them. They will try to get away with as much as they can. Until, of course, something crashes.

If — and perhaps it is a big if — Dilma Rouseff ever regains the political initiative, she will have a great opportunity. She can repeat what happened in other countries and take a tough “clean hands” campaign forward. Public opinion is angry enough to accept that the “rouba mas faz” line, is a short-term self-indulgent lie. And that “zero corruption” is a more than reasonable objective. Corruption will never disappear but it could become the exception rather than the rule.

Furthermore, given Brazil’s role in the region, it might encourage other countries, like Argentina, to follow suit.

@andresfederman

CREDITS: BUENOS AIRES HERALD

A TIME FOR CONCERN

Uncertainty over Argentina’s future foreign policy

In any nation, presidential elections trigger doubts about future foreign policy prospects. That is fairly normal and to be expected. But the particular situation of Argentine politics, as well as the nature of the issues and threats that this country faces, not to mention somewhat limited national capabilities, seem to place it in a highly vulnerable situation.

Perhaps the original sin is the total absence of an explicit basic foreign policy consensus. This conspires against the country’s predictability, a key diplomatic asset. And there are question marks about a number of issues — and even threats — some of which are quite urgent and serious.

One of issues, trade relations with Brazil, is somewhat immediate and has a direct impact on business and employment. To make matters worse, Brazil is facing serious economic problems of its own, which will affect its trade policy. Diplomatic relations with our big neighbour are far from ideal. And any decision or negotiating position offered by Argentina between now and October 25, or November 24 if there is a second round in the Presidential elections, are — of necessity — short term. So it might be prudent to expect a stormy 2015 on this front.

Then there is the — more global — issue of international alignments. The current administration has made a serious shift in Argentina’s foreign policy which — it should be stressed — is quite legitimate, whatever the views that different sectors have about them. China and Russia seem to have replaced the US and the EU as significant partners. And as a result, Argentina has entered into a number of agreements.

The main opposition politicians have been quite critical. Moreover, and to put it candidly, even the FPV hopeful that today seems to be the best positioned, Daniel Scioli, is known to have more traditional preferences in terms of international links.

However, the agreements are there, and Argentina’s partners — both the new and the traditional — must feel intrigued about what will happen after December 10, 2015, if the opposition gets into Government. It should be noted that some of these agreements are quite tight as well as sensitive.

The Chinese aerospace base in Neuquén is a good case in point. It does not make Europe and the US happy. But it might be quite difficult to disengage from that particular situation without paying high costs diplomatic, political or of other kind.

So: will everything remain unchanged or will the new government try to disengage from those situations which would complicate a return to the traditional policies? The question is far from being merely academic. And it could link to another of Argentina’s current vulnerabilities.

Many observers agree that Argentina’s reserve position and financial liabilities (including Judge Griesa’s plaintiffs) is far from brilliant. In addition, financial support — or at least endorsement — from the EU and the US is at a standstill, which has contributed to the current situation. In this context, the Chinese swap/loan agreements have proved to be quite helpful to this government.

Could Beijing use the swaps as leverage to insure the stability of its Neuquén base if the opposition is seen as the next government? And, conversely, are the North Americans and the EU prepared to offer the financial support they would grant to a government of different sign even if the Neuquén base remains in place?

Then there are domestic situations with serious international implications. The Nisman case is the best example, not least because it has personal implications in terms of possible legal liabilities for the president and others in the government.

On March 20, an Israeli minister visited Argentina to participate in the event commemorating the anniversary of the terrorist attack on the Israeli Embassy. In his speech, he spoke highly of the deceased prosecutor. A number of the opposition politicians share the Israeli minister’s positive assessment of Nisman.

But also present was Cabinet chief Anibal Fernández, who badmouths Alberto Nisman on every possible occasion. Definitely a curious situation which does not help the current government’s — already strained — diplomatic relationship with Israel.

Although this in itself is not dangerous, it should be noted that the Nisman /AMIA — as well as the Israeli Embassy — cases are really about terrorism and terrorists. And the disagreements about intelligence and counter-terrorist policies between government and opposition are very evident. This is not safe.

Such divide could tempt a terrorist action so as to stage a provocation in order to benefit from the subsequent confusion. Especially at a time when Argentina’s intelligence services reach new lows every day.

Right now there are a number of non-professional new agents, which seem to have been recruited for their politics and not for their specific experience or professional training, both of which seem to be totally absent from their qualifications.

Clearly, Argentina is quite vulnerable on the intelligence front. And this is — or should be — a cause of serious concern for everybody.

@andresfederman

CREDITS: BUENOS AIRES HERALD