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

OLD AND NEW FRIENDS

New approaches to Uruguay and the US, but signs of a continuation of policy with Russia

This week, President Mauricio Macri is scheduled to visit his Uruguayan counterpart, Tabaré Vázquez, which is mostly seen as a new start for the bilateral relationship. During the Kirchners’ governments, the link had soured. This was due to a number of reasons ranging from the Botnia pulp mills to the way in which Argentine trade and monetary policies had a negative collateral impact on Uruguay. Many argue that — in spite of ideological affinities — the lack of a good interpersonal chemistry at presidential level added to the problem.

By contrast, Macri’s visit to Montevideo is a friendly gesture, which takes place at a time when Uruguay becomes a beneficiary of the reversal of Argentina’s monetary and trade policies, while the Argentine president seems to be in favour of Mercosur exploring trade options in the Pacific. Which was a long standing demand of Uruguay, one that was frowned upon by the bigger partners in the bloc.

This is not the only change in the country’s foreign policy. At last month’s Mercosur summit, Macri voiced harsh words about the human rights record of Venezuela’s Maduro. Once again, that meant a far cry from the previous presidents’ policy and a friendly gesture to Maduro’s critics both in the US and the EU.

None of this should come as a surprise. Both the president and his foreign minister made it abundantly clear that the US and Europe are now topping the list of friendly partnerships to be cultivated. Critics and supporters of the Kirchner governments agreed in defining this as a return to Argentina’s traditional foreign policies. On both sides, some went as far as announcing a return to Guido Di Tella’s times of “carnal relations” with the US.

It might be the case that both sides are failing to see the full picture.

While it is true that, for better or worse, Argentina’s foreign policy is in a process of change, it is also true that the “old times” are not there anymore, because the world has changed. In addition, Argentina now has long term agreements with China and Russia which are not easy to ignore, regardless of the changes in the choice of foreign partners.

In fact, Foreign Minister Malcorra acknowledged this quite clearly. True, she stressed that the Argentine government’s interest is a rapprochement with the EU and the US as she also dismissed ideology as the main factor at the time of making foreign policy decisions.

There are those who might argue that, in some cases — China being the best example — the foreign minister is making virtue out of necessity. Argentina has entered long-term agreements with Beijing. Some would like to walk away from them. Even if — I repeat, if — they are right and such a move is desirable, it would not be so easy. While it could be possible to walk away from financial arrangements by returning the money borrowed from China’s Central Bank, the same cannot be said of agreements related to long-term infrastructure projects. Besides, of course, of the fact that it would be difficult to justify discontinuing projects of this kind without very solid reasons. Moreover, it is unlikely that the new partners in the game would demand such a thing.

There is, however, what may be considered an unfortunate exception, namely the agreement that allowed China to install an aerospace base in Neuquén. The terms of this deal appear to include access restriction for Argentine authorities. And the fact is that all of China’s aerospace activities are under military control. It is difficult to imagine the EU, let alone the US, happy with a military controlled Chinese aerospace base in South America, even if it is, at least officially, solely a “scientific” project.

The Cold War may be over forever but geopolitical tensions between the big powers persist. A current example is the fact that China is insisting on asserting its rights over the South China Sea, which is likely to increase tensions with the US and its allies in the region. Last November, US B-52 bombers flew over the area, triggering Chinese anger as the US insisted on its right to make such flights over international waters. So, on this one, the foreign minister might have an unwelcome source of concern, especially if one of the two sides — the existing China partner or the new US one — demands explicit political support. Fortunately such demand is, at this time, purely hypothetical.

That is not the case with Russia. The EU and the US imposed an embargo on food exports to Moscow as a sanction for its policy on Crimea. On the other side, Argentina specifically rejected the sanctions and continued — or perhaps increased — its food exports to Russia. This was very clearly Cristina Fernández de Kirchner’s political decision, and Macri seems ready to pursue a similar strategy.

On December 16, the Argentine president and Malcorra had a phone conversation with Putin. According to the information provided by the president’s office, they agreed that Argentina would continue to be “a reliable supplier of food products” for Russia, which implies that Argentina will continue with the policy of not joining the EU and US in their sanctions policy. This, in turn, diminishes the desired impact of the sanctions. Not an insurmountable confrontation for Argentina, but clearly not an ideal signal of good will towards a new (or renewed) partner.

In all likelihood, the process of changing Argentina’s foreign policy is going to have easy moments like this week’s meeting with Uruguay. But Malcorra is also likely to have some more cumbersome moments which, as she well knows, come with the territory.

@andresfederman

CREDITS: BUENOS AIRES HERALD

BEYOND THE PARIS ATTACKS

Violent road lies ahead and there is little to negotiate

Some, including this writer, believe that last Friday’s outrageous terrorist attacks were part of a general assault aimed at triggering a massive reaction from both the public and governments against Muslims living in the EU and the US. The objective is to push more Muslims living in Europe into the ranks of ISIS. And that the timing and targeting of this particular incident had to do with the fact that, in three weeks, regional elections will take place in France.

There is a strong chance that Marine Le Pen’s right-wing Front National, which holds strong anti-immigrant and anti-Islam views, will be favoured by the voters’ reaction to what happened in Paris. Her immediate response to the terrorist attack was a reiteration of her call for much stricter immigration laws and an abandonment of the Schengen agreements which allow people to circulate within most of the EU freely, without border controls. Curiously, her speech was more moderate than what could have been expected. The Front National’s messages were there, but the rhetoric was acceptably democratic especially in light of the circumstances.

The message of the rest of the relevant political leaders was adequate and — above all — responsible. It promised that justice will fall on the perpetrators but it also remarked the commitment to democracy, human rights and the rule of law. A cynic would define them as politically correct. But a realist would note that in some circumstances — and this is one of them — political correctness, as trite as it may sound, is the only available option. A couple of wrong phrases in the heat of a speech delivered in understandable anger could trigger reactions from the general public which would only make matters worse. And would play into the hands of the terrorists.

However, beyond the statements, last Friday’s events are telling us that the EU, the US, and most of the world are facing a very serious problem which is totally different from the terrorist threats of the past. And that, in order to analyze its nature, it might be necessary to look again at less idealistic views of the world in which we live.

This means accepting that humanistic philosophy, which suggests a weakening of religious dogmatism as a source of conflict, might be a good wish rather than an adequate description of today’s world.

Back in the early 1990s, the Soviet bloc had disappeared and many believed that there was a conflict-free future ahead. There were some strongly discordant voices challenging this view. Perhaps the most memorable was that of Samuel Huntington, a political scientist who published an article with a disturbing title: The Clash of Civilizations.

His view was that conflict between ideological blocs and/or nation states would be replaced by a clash of civilizations which was destined to dominate global politics. And he offered detailed descriptions of the main cultures and their points of conflict.

His remarks on Islam are worth revisiting in view of the current situation. Huntington wrote: “Conflict along the fault line between Western and Islamic civilizations has been going on for 1,300 years. After the founding of Islam, the Arab and Moorish surge west and north only ended at Tours in 732. From the 11th to the 13th century, the crusaders attempted with temporary success to bring Christianity and Christian rule to the Holy Land. From the 14th to the 17th century, the Ottoman Turks reversed the balance, extended their sway over the Middle East and the Balkans, captured Constantinople, and twice laid siege to Vienna. In the 19th and early 20th centuries, as Ottoman power declined, Britain, France, and Italy established Western control over most of North Africa and the Middle East.”

True, the conflict became much more moderate, but it never disappeared entirely. It is about a compound of issues which range from views about God and religion to everyday life. A perhaps minor but nevertheless significant example of this clash, which has to do precisely with France is that Muslim females were banned, in 2004, from wearing their burqas in French public schools.

In other words: French commitment to a non-religious republic against ISIS’ commitment to fundamentalist religious rules.

Noticeably, with a few exceptions, like Palestine and Israel, the conflict transcends the issue of nation states. Israelis can negotiate with groups fighting for an independent Palestinian state. Ironically, even if they are confronting through violence, they can nevertheless negotiate with each other or through third parties. They have something to negotiate about which is quite concrete. Territory and independence. They might not reach an agreement, but both sides have clear final objectives and are mutually aware of them.

By contrast, ISIS’ demands which include elements like “death to all the infidels” are not negotiable. A definitely violent road ahead.

@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

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

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

FOREIGN POLICY AFTER DECEMBER 10

It won’t be plain sailing for the winners of the next elections

What will be the shape of Argentina’s foreign policy under a new presidency? Most pundits agreed, even before last Saturday, that there are only two candidates with serious chances in the next Presidential elections: Mauricio Macri and Daniel Scioli.

Macri’s message is quite straight and clear. He espouses market-friendly policies and a tougher line against crime. And, on foreign policy, a return to the traditional international partnerships with the EU and the US.

As for Scioli, he is (was?) considered to be a moderate politician and people imagined him to be more market-friendly than the national government. The same could be said about his foreign policy. So much so that, at some stage, there even was speculation that President Cristina Fernández de Kirchner was not in favour of him being the Victory Front’s (FpV) candidate.

However, last week brought significant surprises.

The candidacies being put forward by the “Cristinistas,” from Carlos Zannini for the vice-presidency to some of the hard-liners nominated for the seats in Congress, predict a continuity of current policies should the FpV win the elections.

And the national government’s foreign policy leaves no doubt about preferences, sympathies and alignments. Last week, this daily reported Economy Minister Axel Kicillof as saying that ties between Buenos Aires and Moscow were “a fact, not a wish,” praising the bilateral relationship’s “natural understanding.”

He was by no means a lonely voice in the government. Earlier this year, on April 23, during her visit to Moscow, Argentina’s president told her Russian counterpart, Vladimir Putin, that “both our countries are commemorating the 130th anniversary of the bilateral relationship by signing an ‘agreement on Strategic Integration.’”

Russia is not the only non-Western power with which this government has forged close links. During her visit to Beijing the president entered an “Integral strategic alliance” which — in her words — should not be limited to trade and investment but also extend to cultural and communications affairs. In her speech, Cristina also mentioned Argentina and China’s mutual support over their respective international claims.

Mauricio Macri shows a similar determination, but in the opposite direction. Last December, when he visited Europe he clearly specified his preference for Argentina rebuilding its links with the European Union and the United States. He was critical of the links with President Nicolás Maduro’s Venezuela as well as — albeit with less vehemence — with the alignment with China and Russia.

True, the old times in which the then-Communist Soviet Union and the — also Communist — People’s Republic of China were a unified block, are something of the past. And that China as well as Russia have trade, investment and financial relations with the EU and the US. But it is also true that China and Russia do confront each other on different issues — sometimes as allies — with the Western countries.

In the case of Russia, currently the most serious issue of confrontation is Moscow’s policy toward Ukraine. There is also a — not as burning — battle with the US to gain influence in Latin America.

China has its own problems with the US. One of them is the dispute over the South China Sea as well as some of its islands. There are several — and in some cases conflicting — claims against China from Indonesia, Taiwan, The Philippines, Vietnam, Brunei, Malaysia, Cambodia, Thailand and Singapore. Some of these countries are close allies of the US which makes its presence known in the area so as to prevent China using its military might to intimidate its weaker neighbours. The usual choreography in those cases — military exercises or “exploratory” flights over the region in conflict — triggers angry protests from Beijing.

In addition, there are several disputes over trade. The basic problem is that China’s very low labour costs turn that country into a complicated competitor, something that affects manufacturers in many countries, some of which do not have many options because they need other things from Beijing. But the US manufacturers have enough political clout so as to stop Chinese exports and to get their government to lobby against other governments on their behalf.

Some more trouble

Some international observers note that both China and Russia are facing economic troubles which affect their people. And one of the ways in which both governments could be tempted to mitigate their own political difficulties is with some doses of anti-US nationalism. The solution of which, is definitely not conflict-free.

The optimists in the “Cristinista” camp could be happy. They believe that they are playing the right foreign policy game. But they might be wrong. Argentina depends on the US and the EU over a number of issues. The most urgent — but not the only one — is access to financial markets. So at some stage, they would have to try and have some kind of rapprochement. Which might not be easy if the alignment with “the other side” gets stronger.

The optimists in Macri’s side might be equally happy. The open arms of the EU and the US are likely to be waiting for them. However, they could also be wrong. The recovered old friends might expect some signals in exchange. But Argentina’s strategic alliances with China and Russia go beyond statements at the UN General Assembly. There are contracts signed, joint ventures agreed upon and financial aid has been accepted. Disengaging from them is far from easy and could be quite expensive.

There will not be easy times ahead for the winners of the next elections.

CREDITS: BUENOS AIRES HERALD

CRISTINA, VLADIMIR AND FRANCIS

Embracing the pope and the new world order

It was back in 1944. In the midst of a meeting about the post-war world, Winston Churchill was explaining his views about the moral power of the Roman Catholic Church. Joseph Stalin interrupted him with a sarcastic comment disguised as a question: “How many divisions does the Pope of Rome have?” Stalin asked , making it clear that he only believed in military might as a source of power.

More than 70 years later, it is quite clear that those who succeeded Stalin at the Kremlin — especially after the fall of the Soviet Union — have different views about the power of the Vatican. Last Wednesday, Vladimir Putin visited the pope in Rome. It was their second meeting, and the situation in Ukraine was at the top of their agenda. Putin was not the first Kremlin leader to visit the pope.

Quite often, Argentines are said to be too self-centred and always ready to be convinced that whenever anything happens in the world, it must have some kind of link to Argentina. This writer believes that — perhaps in most occasions — it is a fair assessment. But, at the same time, in view of some of last week’s news, a look at the links that associate President Cristina Fernández de Kirchner, Pope Francis and Vladimir Putin might show some unexpected developments. There are several facts as well as some indicators, which stem from educated speculation, that seem to underpin this view.

Some facts: Russia and Argentina have publicly announced their strategic alliance. The alliance encompasses technological cooperation in areas like the generation of nuclear power that is needed by Argentina. Argentina in turn provides food exports to Russia that are quite important at a time when the EU and the US are sanctioning Moscow because of Ukraine, especially since there seem to be plans to extend the enforcement of these sanctions. Also, in political terms, Argentina supports Russia’s position in its conflict with Ukraine. And Moscow reciprocates by supporting Argentina’s sovereignty claim over the South Atlantic Islands. The alliance also implies a shared and critical view of the United States and of some its important EU partners.

It is also a fact that, when Jorge Bergoglio became Pope Francis, the Argentine president was quick to send friendly signals to Rome, putting an end to the several years of confrontation between the Kirchners and Bergoglio. These signals were acknowledged and reciprocated in terms of offering quick and quite frequent access to the Vatican, not only for Cristina, but also for several members of her inner circle.

Pope Francis has also made friendly gestures toward Putin. He has not condemned Russia’s policy on Ukraine, limiting his messages to a call for peace, asking Christians not to kill each other. And this message had some clearly identified addressees, including the Russian Orthodox and the Eastern Catholic Churches — permanently at loggerheads with each other.

Then there is the informed speculation. First, there is the fact that many top brains in the government are seriously convinced that the world is quickly changing its geopolitical shape. They point out at several indicators that range from China’s new role in the world to the emergence of the BRICS, the association of Brazil, Russia, India, China and South Africa. The economic problems in Europe underpin the Kirchnerites’ view, who remark that the end of US hegemony is here or just around the corner. Which, in turn, shows that the way forward is for strong states that, under regional associations, regulate their economies and manage — within this framework — their trade and investment relations .

Those who follow the Vatican closely emphasize the Pope’s activism which he has applied to hands-on conflict resolution, global in scope from Eastern Europe to the Middle East. They also insist on assigning a Peronist DNA to Francis, explaining such identity in terms of a geopolitical view of the world in which countries should not accept the place pre-assigned to them by the great powers.

As for the style, it implies the ability to find the adequate political task for each political leader, which can be determined by the possibility of assigning specific and appropriate roles to each of them. The obvious resemblance is to Perón who, from his Madrid exile, managed to be a more than significant player in Argentina’s politics. The observers speculate that Bergoglio has exactly the same ability. And that the future he envisages for Ms. Kirchner is that of being his informal ambassador, operating as a unifier and trouble-shooter in Latin America. It should be noted that this view, which many will see as a mere pipedream, was put forward by serious and non-Peronist operators.

@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