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

MERCOSUR WELCOMES PRESIDENT MACRI

 

Trend of greetings transcends mere politics

A week from now, a new Mercosur summit will be held in Paraguay, the first one attended by the new Argentine president.

For better or worse, the bloc has not been a “hot” news issue for quite some time now, unless it appears linked to specific political issues affecting its member states. The new Argentine president managed to put Mercosur back on the front pages when he threatened to apply the bloc’s “democracy clause” to Venezuela, so as to punish Maduro’s alleged human rights violations. But the Venezuelan leader’s acceptance of his defeat in the December 6 elections made that confrontation unnecessary.

However, some special circumstances surrounding next week’s meeting suggest that perhaps — repeat: perhaps — we might see a departure from the rather uneventful tradition of the Mercosur and discover some changes. Not earth shattering, but nevertheless important.

The first is Macri himself. Many believe that his politics are — in theory — different from those of Mercosur’s heads of state with the possible exception of Paraguay’s Horacio Cartes. But this view might be simplistic.

The sole exception is, obviously, Nicolás Maduro, who has already removed all doubts about his views on Macri. But Venezuela has enough problems of its own to bully Macri. Or to muster Mercosur’s solidarity against him. There might be some noises coming from Paraguay, but the bet is that it will be rhetoric rather than business.

As for the other partners, there seems to be some real business worth paying attention to. In the case of the main partner, Brazil’s Dilma Rousseff made a point of offering Macri red carpet treatment when he visited her as president elect. But the welcome transcended politics.

The powerful Sao Paulo business lobby suddenly found the one Argentine (who happens to be the president) whose ideas they like. Many of them are quite critical of Mercosur, which they consider a barrier rather than a platform from where to expand to the rest of the world. And Macri has already voiced his opinions that it is important for the bloc to start looking at a wider — and more flexible — range of international trade options. Not to mention the fact that his Foreign minister went as far as suggesting that the FTAA (Free Trade Area of the Americas) is not necessarily “a bad word.” A total reverse of the views of those who were in government until last week.

In the case of Uruguay, despite former president Pepe Mujica’s open support for Daniel Scioli, it is assumed that the current President Tabaré Vázquez, let alone the Uruguayan people, expects that the new Argentine president will be friendlier to Uruguay than Néstor and Cristina ever were. There are a number of issues pending between both countries. And it should not be difficult for the new Argentine government to solve quite a few of them.

Others, especially those related with trade, might be more complicated. They depend more on the state of the economy than on political decisions.

But Uruguay’s interest might focus on aspects much wider than bilateral trade. Tabaré Vázquez is determined to use the opportunity of Uruguay’s presidency of the bloc, which begins next week, to “open up” Mercosur. In what seems to be a strong coincidence with Argentina’s new government, there is the view that Mercosur should start reaching towards a wider word (specially the Pacific) in search for trade and investment. The view seems to be “we cannot leave Mercosur because we would have to move Uruguay elsewhere.” But the way in which the bloc is working is far from satisfactory. Especially for the smaller partners.

In the last few years, Mercosur has been almost paralyzed. It remains to be seen if the recent political changes in the region impact on the workings of the bloc.

@andresfederman

CREDITS: BUENOS AIRES HERALD

 

WELCOME MS. MALCORRA

A new toolbox to tackle old problems of foreign policy

A word of warning: if you are absolutely convinced that the result of the presidential election is a blessing for Argentina, it is suggested you skip this column and invest your time in reading other sections of the Herald. The same applies if you believe that Scioli’s defeat is a tragedy. Again, do not waste time and read more valuable sections of the daily.

This column will focus on the appointment of Susana Malcorra as the incoming foreign minister, and has nothing to do with the merits or demerits of both the elected and incumbent presidents.

Her appointment came as a surprise at a time when most of the speculation suggested different members of the victorious alliance. All of them with clear political party commitments. By contrast, except for a minor involvement with the UCR, the lady is not a politician. In fact, the link with partisan politics is so tenuous that many of the press’ descriptions of the new foreign minster do not even mention it. And — in line with this — none of the reports about the participation of the UCR in the future Cabinet includes her as part of the deal.

The non-partisanship factor has caused surprise beyond Argentine borders. The foreign ministers of Uruguay, Chile, Bolivia and Paraguay are all active politicians. Just to cite further examples, the same happens in other countries, like the United States, the United Kingdom and Germany. The only possible exception would be Brazil’s Mauro Vieira. His merits for the job come mainly from a long, brilliant career as a diplomat.

But here again, there are no similarities. Some of the names mentioned as possible foreign ministers in a Macri presidency belonged or have belonged to the diplomatic service. In some cases as foreign ministers

But that is not the case with Ms Malcorra. She never served as an Argentine diplomat.

So what is so special about the new Foreign Minister? For starters, she was, until she shifted jobs, the UN Secretary General’s Chef de Cabinet. And before that, she had first been the Chief Operating Officer and Deputy Executive Director of the UN’s World Food Programme and then the UN’s Under-Secretary-General for Field Support. This last position implied guaranteeing the logistic for more than 100,000 people involved in peace-keeping activities. In addition, it should be noted that -before joining the UN - the lady had a very successful career in the corporate world.

Some Macri analysts or critics, suggest that Malcorra has been chosen for her top managerial skills in order to join peers with equally strong credentials. Both supporters and critics of the new president argue that he does not believe in traditional politics which, they argue, Macri feels can be replaced by professional managers.

It is strongly suggested that her managerial skills are a contributory bonus. But several other reasons associated with Ms Malcorra’s career path contribute to make her the ideal person for Mauricio Macri’s foreign policy needs, which are about conflict and high politics and not about logistics and management.

The work of any country’s diplomats is to promote its national interest. Praiseworthy of course. But frequently conflictive. Two or more sides determined to win, but often without much regard for rules and ethics. Or even life and death, if the stakes are high enough. Terrible, but such is life.

By contrast, the UN is mostly in the job of managing conflict. Keeping the peace even if the deep roots of the conflict cannot be solved. Stopping famine and feeding people even if it is done on the basis of donations from member governments. The UN is quite successful at limiting damage. Conflict resolution is always there as an objective. But damage containment is, perhaps, as much as you can ask for.

A review of many of Argentina’s current foreign policy problems show a striking similarity. Issues cannot be sorted out. Perhaps because they are too complicated, but they can be managed so things are not paralyzed causing even greater damage.

There is no shortage of examples. Rightly or wrongly, the next government plans to revise the alliances which —again, rightly or wrongly — the Kirchner governments entered into with Russia and China. In both cases, but especially in relation with China, there seems to be complicated business and cooperation arrangements from which it is not easy to walk away. So, at the same time that Argentina wants to try a rapprochement with its traditional EU and US partners it is also engaged in a deal with China that raises eyebrows from its newest would-be partners.

And then there is Brazil. The world economy, not to mention its own political situation, is harming Brazil, which — in turn — harms Argentina. Once again, the problem cannot be solved, there are too many independent variables at play, including the businesses from both sides. Realistically the best possible scenario seems to be one where conflict has to be managed without much hope of definite solutions.

And related to Brazil is Venezuela. Macri has decided to raise the political ante. He wants to punish Venezuela on account of Nicolás Maduro’s human rights policies. He has decided to pick up a fight and to try to apply Mercosur’s democratic clause on that country. Thus, our next President is choosing a fight not only with Maduro, but also with Brazil that is in favour of Maduro. Not to mention the barrage of local criticisms from Kirchnerite quarters. Susana Malcorra will have to find delicate balances in order to avoid having situations getting out of hand. And her UN experience, placing her above the problems in order to attempt damage containment, is likely to be more useful than any experience in defending positions of petty fights at nation state level.

@andresfederman

CREDITS: BUENOS AIRES HERALD

BEYOND THE OPINION POLLS

Ignore the surveys — a new tool is helping to predict elections

The aftermath of the 25 October election is as follows: happy faces in the group supporting Mauricio Macri, worried faces in the Victory Front (FpV) crowd, and egg on the faces of the pollsters who did an interesting job out of getting most of their forecasts wrong.

A more private consequence for many was an increase in calorie intake for the numerous Argentines who were collecting their winnings and paying off their debts, as a result of gambles they made on the outcome of the election.

“A dinner says that (Macri/Scioli) wins on 25 October” was a phrase repeated in many social circles over the last month.

A very Argentine tradition, it’s bad for those watching their weight but with great benefits in terms of amusement, friendships and socializing.

Whilst Argentines were settling their particular gambling debts, in the United States a more institutional commemoration was taking place. The “PredictIt” organization celebrated its first year in business. (http://www.predictit.org/)

This is the latest tool available for political practitioners. In its own words, PredictIt “is a new real money game that tests your knowledge of political and financial events by letting you make and trade predictions.” And this organization is not the brainchild of a Wall Street broker. It is a project of the Victoria University, in Wellington, New Zealand, which was “set up to research the potential value of prediction markets in understanding the future.”

For good measure, the people from PredictIt end their presentation with the enticing line: “Our job is to study the wisdom of the crowds, yours is to make you most educated prediction.”

The “game” is quite simple. Predictions about future events are formalized by buying shares in the outcome, either “Yes” or “No.” Each outcome has a probability of between one percent and 99 percent, with the sum of the two always naturally adding to 100 percent. And these percentages are then converted into US cents.

This is not a high-stakes betting game. The limits are quite low and the money element is a device to encourage players to play rather than being the object of the business. The highest possible single deal is currently US$850. In fact, its 37,000 members have traded a total of approximately US$10 million, which averages out to about U$S270 per individual.

The object of the exercise is orientated toward research, in as much as prediction markets like this one are attracting a lot of academic and practical interest. And, perhaps more importantly, what happens in the PredictIt markets can have an immediate impact on “real-life” politics.

Recently, staff of the US Republican Party presidential candidate Jeb Bush learned this at their own expense. They use PredictIt as one of the indicators about their candidate’s chances. And when the predictions market indicated that Marco Rubio was ahead of Bush in the Republican party race for the nomination, campaign donors started to shy away. And in US politics at the moment, it seems easier to recover from a temporary setback to your ranking in the game than from having your donors looking for the exit door.

Fans in Wall Street

According to Bloomberg, the case of Jeb Bush is not isolated. In their view, Wall Street donors (obviously, amongst the biggest contributors to campaigns) look more at information offered by the likes of PredictIt than at opinion polls. The view, held by many economists, is that betting markets are more accurate in predicting political events than opinion polls. Even if they have a lower number of participants.

Interestingly, this prediction market offers numerous themes and options on which to bet that go way beyond the US presidential race. Amongst the US topics open to prediction are if — after the 2016 elections — the party which wins will be unified in government and Congress. Which is possibly related to the primaries and their occasionally bitter quarrels.

Or you can bet on whether a law will be passed by Congress. On international matters, the market is open on issues like whether Venezuelan President Nicolás Maduro or Brazilian President Dilma Rousseff will last out their terms in office. You can even bet on the possibility of a woman becoming the next UN Secretary General.

But there appears to be no Scioli-Macri option on PredictIt. It’s left to you ,dear reader, to imagine the possible questions/options that could be offered around this issue — and the odds.

@andresfederman

CREDITS: BUENOS AIRES HERALD

FOREIGN POLICY: WHAT NEXT?

Regional integration high up the agenda for next president

Next Sunday’s presidential elections will trigger the curiosity of a significant number of foreign observers. They include journalists (both correspondents and special envoys), diplomats posted in Buenos Aires and businesspeople, mainly from the financial world but also from other sectors of the economy.

Their interest is not merely academic. Foreign policy decisions impose themselves as a significant segment of the next government’s agenda, and they include a wide range of issues with many different short-, medium- and long-term implications. Negotiations with the holdouts/“vultures” have long ago ceased to be merely financial affairs. They now have serious political implications. Regional integration —and more specifically the Mercosur — is another item waiting for a policy which materializes into action. And there is a long list of other items, including relations with Russia and China and their impact on Argentina’s links with its more traditional partners. They all raise questions about the “next steps.”

Many of those questions can be linked to the need to assess the influence of the Peronist tradition in Argentine foreign policy. It is indistinct if Juan Domingo Perón’s heirs are in government or in opposition. In the latter case, they will have enough nuisance power so as to make the government’s life difficult. And, in any case, two of the three leading candidates, Daniel Scioli and Sergio Massa, have very strong links to Peronism. As for the third one, Mauricio Macri, his party has a not insignificant Peronist component. Moreover, two of the most relevant PRO foreign policy spokespeople — Diego Guelar and Fulvio Pompeo — come from the Peronist camp.

But defining Peronist foreign policies are far from easy. Since the return of democracy, some Argentine Peronists, like Carlos Menem, have aligned the country with the United States, without any doubts or regrets. Menem went as far as contributing to US military actions in the Middle East, sending a war ship to Iraq. Cristina Fernández de Kirchner went the other way. She made a point of entering, with quite significant fanfare, a strategic alliance with Russia’s Vladimir Putin who — despite the fact that the Cold War ended long ago — is definitely not on Washington’s list of favourite leaders.

Looking back into the origins of Peronism, the father of the creature was a true — and very able — pragmatist. His “Third Position” narrative — “We are far from both imperialisms” (sic) — was normally combined with moves which placed Argentina alternately near one or the other, according to the needs of the moment. During his first two presidencies he rejected US pressure to join in fighting the Korean war, whilst, at the same time, accepting Washington’s continental defence policies, by adhering to the Act of Chapultepec in 1945 and the Inter-American Treaty of Reciprocal Assistance (Rio Treaty) in 1947.

Perón’s third — and very short — presidency was also a display of pragmatism in action. The foreign policy programme published on 12 October 1973, the day he was sworn in, talks of “adapting to the international situation, favouring political realism rather than ideology.”

However, neither Menem nor CFK seemed to share Perón’s pragmatism.

A certain consensus

There seems to be a certain consensus on some foreign policy issues, amongst the three main candidates. They have all made noises about negotiating with the holdout/“vultures.” Likewise, all three have spoken about rebuilding relations with traditional partners — in other words, the European Union (EU) and the US.

In Scioli’s case the noises are less audible and combined with signs adhering to the more Kirchnerite policies. These signs have included a short visit to Cuba, as well as images showing himself in the company of interlocutors like Bolivia’s Evo Morales, Uruguay’s “Pepe” Mujica and Brazil’s Dilma Rouseff .

It remains to be seen — if and when Scioli becomes president — if such gestures were targeted at a general audience or were merely a signal to the diehard Cristina supporters who still, albeit more silently, accuse him of being a right-winger in disguise. Which brings up the question of CFK and her close followers’ reactions to the different foreign policy changes which will inevitably start to emerge under a new president.

One can reasonably expect that, if the new policies are implemented by Macri or Massa, they will meet with opposition from CFK.

But what will happen in the case of a Scioli presidency moving away from existing foreign policy? How far will CFK go in her opposition? And how many of the more traditional Justicialist Party (PJ) leaders will align with her?

@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