Latin America's New Consensus
by Conn Hallinan, Foreign Policy
www.fpif.org, October 29, 2008
When the Mexican dictator Porfirio Díaz
said the great tragedy of Mexico was that it was so far from God
and so close to the United States, the comment summed up the long
and tortured relationship between the Colossus of the North and
Starting with the Monroe Doctrine in 1823,
the United States has routinely dictated the hemisphere's political
and commercial life and, on a score of occasions, overthrown governments
it found inimical to its interests.
But the world has suddenly turned upside-down.
South America now boasts the third-largest
trade bloc in the world, Mercosur, which includes Argentina, Brazil,
Uruguay, and Paraguay. Venezuela is in the process of joining
as a full-fledged member while Chile, Bolivia, Peru, Colombia,
and Ecuador have associate status, and Mexico is an "observer."
Even without the coming expansion, Mercosur represents the bulk
of the continent's landmass and its two most powerful economies.
A dozen countries also recently formed
a new political organization known as the Union of South American
Nations (UNASUR); Mexico and Central America have observer status
in the European Union-like entity.
Testing Newfound Independence
The global economic meltdown will sorely
test this newfound independence in the coming months. In the past,
if Washington sneezed, Latin America came down with pneumonia.
Will the current economic conflagration derail South America's
growing autonomy, allowing the United States to again dominate
The economic crisis will certainly impact
South America. Currency values from Brasília to Mexico
City have fallen. At the same time, most Latin American countries
are in a better position to weather the storm than the United
States, Europe, and Japan, where banks play a larger role in the
"No one can avoid the events of the
past few weeks," says Riordan Roett, director of the Johns
Hopkins Western Hemisphere Studies Program, "but we are seeing
some countries better insulated than other countries." Brazil's
foreign exchange reserves, for instance, amount to more than $206
billion, which should cover the country's need for export credit
until "the most acute stage" of the crisis is over,
says Brazilian Finance Minister Guido Mantega. _And because the
government of Luiz Inácio Lula da Silva has reduced poverty,
thus expanding its internal market, the country is in a better
position to endure the global financial turbulence. "Brazil
is not immune to the crisis," says Mantega, "but this
affects the countries with problems in their banks more, and countries
like Brazil less."
Argentina also has a substantial central
bank reserves - $47 billion - and is hinting that it will delay
replaying its $6.7 billion debt to western creditors until it
can negotiate better terms.
Venezuela and Brazil are leading an initiative
to form the Bank of the South (BancoSur), an institution that
would pool a portion of participating countries' reserves, and
ultimately replace the International Monetary Fund, and its onerous
insistence on cutting social and infrastructure programs as conditions
for its loans, with a more development-friendly approach. Besides
Brazil and Venezuela, Bolivia, Ecuador, Colombia, Paraguay, and
Uruguay have signaled their interest in joining.
Venezuela has reserves of $30 billion,
the largest per-capita total on the continent, says Martin Saatdjian
of the Ministry of Foreign Affairs, but the government is being
careful. It's considering a "minor devaluation" of the
bolivar, Venezuela's currency, and "austerity spending for
the next fiscal year" if the crisis "deepens and the
price of oil drops," says Saatdjian.
Caracas is spreading its oil wealth throughout
the continent, which has cushioned the impact of the economic
downturn. The fact that Venezuela bought $2.4 billion of Argentina's
debt beginning in 2005 has helped Buenos Aires build a rainy-day
Starting in the late 1990s, South America
stepped up its efforts to diversify trade with the rest of the
world, in particular resource-hungry China. Beijing buys Chilean
copper, Cuban nickel and cobalt, Brazilian and Uruguayan soy,
and Venezuelan, Ecuadorian, and Bolivian oil and gas.
Trade between Latin America and China
totaled $102.6 billion in 2007, and the Chinese currently plan
to invest up to $100 billion over the next five years. Brazil,
Chile, and Argentina have a total of $28 billion in two-way trade
with China, and China is investing heavily in Chilean copper and
Venezuelan, Bolivian, and Ecuadorian oil and gas. Beijing is currently
negotiating a free-trade agreement with Peru. Almost half of China's
foreign investment goes to Latin America. While China's economic
growth is slowing down, that term is relative. Its economy is
still growing at 9% annual rate, and the Chinese government is
taking steps to keep growth from falling any lower.
Russia and Iran have also becoming major
players in Latin America. Russian Deputy Prime Minister Igor Sechin,
accompanied by business leaders, just finished a tour of Cuba,
Venezuela, and Nicaragua, and the Russians are helping to develop
oil fields in Venezuela, Bolivia, and Ecuador. Iranian President
Mahmoud Ahmadinejad has been welcomed in Venezuela, Bolivia, Ecuador,
Still Gaining Steam
The United States, on the other hand,
is saddled with the legacy of its "Washington Consensus"
policy of wide-open markets. The neoliberal strategy led to ruinous
debt in Latin America, exacerbating its yawning gulf between rich
and poor, and financial catastrophes like the protracted Argentine
collapse, which began in 1999 and impoverished half that country's
population. The wreckage wrought by the Washington Consensus and
the International Monetary Fund's enforced austerity sparked an
economic and political revolt in Latin America that's still gaining
Brazil and Argentina paid off their IMF
debts ahead of schedule and concentrated on building infrastructure
and alleviating poverty. The result has been a steady economic
growth, with expansion this year of 4.4%, which, according to
Citibank forecasts, will fall next year, but probably not more
than a percentage point. In contrast, U.S. and European growth
rates are projected to drop to 1.5%, or even to zero. Latin America
is "a better-built boat," says the World Bank's chief
economist for the region, Augusto de la Torre. Political independence
is on the agenda as well.
In 2003, no South American country backed
the U.S. invasion of Iraq. In 2005, South America rejected a U.S.-led
Free Trade for the Americas pact. And while Washington is hostile
to left-led governments in Venezuela, Bolivia, and Ecuador, the
rest of the continent has rallied behind them.
Rather than looking north, countries like
Brazil are increasingly developing south-south relations. In 2003,
India, Brazil, and South Africa formed an alliance called IBSA
(an acronym derived from the three nations' names), which met
recently in New Delhi to discuss a joint approach to the current
economic crisis, as well as food security and energy prices. Between
them, the countries represent 1.3 billion people and three of
most dynamic economies in the developing world outside of China.
Trade between the three is projected to top $15 billion by 2010.
Developing countries "need to learn
from the crisis to construct a new world economic order,"
Lula says. The economic crisis has accelerated these moves toward
breaking the stranglehold the United States has had on the world
of finance. There is a "new reality," says United Nations
General Secretary Ban Ki Moon, "new centers of power and
leadership in Asia, Latin America, and across the newly developed
German Finance Minister Peer Steinbruck
is blunter. "The U.S. will lose its status as the superpower
of the world's financial system. This world will become multi-polarthe
world will never be the same again."
Beset by economic crisis and bogged down
in two unwinnable wars, the Colossus of the North no longer wields
the clout it once had. "In the past, the door for talks with
the United States on any issue had to remain open. We had no choice,"
a Brazilian diplomat told Southern Pulse, an internet site on
Latin American security. "Now we can close it if we want."