Monthly Archives: August 2012

Brazilian booming export revenues due to high commodity prices, not increased volume–says former Central Bank board member

Alex Schwartzman, a former board member of Brazil’s Central Bank, calls attention to the weak fundamentals behind the steep increase in the country’s export revenues. In a recent op-ed published at Folha de S. Paulo, a national newspaper, Mr. Schwartzman explains that the prices of commodities exported by Brazil rose 163 percent in 2002-11, well above the 65 percent increase in the prices of all exports in the global economy.

On the other hand, volumes exported from Brazil rose at a slower pace than global levels–61 and 67 percent respectively. Given those figures, Mr. Schwartzman, who is now an economic consultant in Sao Paulo, expects that Brazil will face harsh times as China starts to grow at a lower pace and demand for commodities drop.

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Pointed analysis of Mercosur from former Uruguayan President Sanguinetti

Former Uruguayan president Julio Maria Sanguinetti (1985-1990, 1995-2000) has published a very insightful article about the state of Mercosur on the Infolatam.com site.

Sanguinetti starts with a quick review of the bloc, noting that the first eight years from 1991 to 1998 were marked by numerous successes, but when Brazil devalued the real in 1999, the institutional fragility of the bloc became clear. Dispute resolving systems were barely in place and didn’t work. Argentina then shifted to a highly protectionist trade policy within a common market. What little institutional and legal strength Mercosur retained took a serious blow with the opportunistic suspension of Paraguay earlier this year.

The Treaty of Ushuaia was implemented to vouchsafe the democratic nature of member-states after a nearly successful attempted 1996 coup in Paraguay. This is the mechanism that was used by Argentina and Brazil to suspend Paraguay and let Venezuela into the bloc. But, as Sanguinetti points out, the Treaty requires that extensive consultations with the questioned country take place before it is suspended. His problem with the procedures followed in Mendoza is that these consultations did not take place and that massive political pressure was used to silence Uruguayan objections to a clear violation of the Mercosur treaties by Argentina and Brazil.

As intrinsically distasteful as Lugo’s impeachment may have been, Sanguinetti reminds us that it took place through the constitutionally appropriate mechanisms in what amounted to a political trial. It should not have mattered that Lugo was seen as something of a friend by Dilma and Cristina.

A quick Google Translate rendition of Sanguinetti’s last paragraph is worth including for the non-Spanish reading:

“What happened in Mendoza is a setback in the process of regional integration and the international validity of the statutes and the recognition of their underlying principles. In the name of democracy, [Argentina and Brazil] have ignored all the values ​​that underpin it. There are no laws or principles. In the name of solidarity or political enmities, [they are] acting without the constraints of law. Neither has the principle of nonintervention been left standing. From now on, anything goes.”

What Sanguinetti is getting at is a much deeper systemic problem with inter-American affairs and a central remaining challenge to total democratic consolidation in the region. Elections are an important part of democracy, but their significance is limited when you have an attitude in the political class that because they are in charge they can do whatever they want.

The operating concept here is what Guillermo O’Donnell called ‘horizontal accountability‘, the idea that there are rules, procedures and institutions that restrain the arbitrary actions of the state in a clear and predictable manner. There are clear signs from Argentina and Brazil, let alone Paraguay, that elected leaders at all levels have not quite internalized the idea that in a fully consolidated democracy there is a system of checks and balances that restrain executive caprice. Indeed, the big story right now in Brazil is about the mensalão corruption scandal, which charges that political advisers around Lula were running a ‘cash retainer’ system to buy votes in congress to get the get governmental legislation through.

The short-shrift given to regulatory and legal restraints by some political actors is amplified when we turn to the international arena. The open secret in inter-American affairs is that most issues are settled through presidential diplomacy, hence the large number of regional summit meetings. Legal and institutional structures are not put in place to effectively govern bilateral and multilateral relations (for example, what is the institutional and juridical strength of CELAC and Unasur?), and when they are in place, they are either ignored or marginalized. This latter case is exactly what we see happening in Mercosur. We don’t have the bandwith to list all of the unresolved intra-Mercosur trade spats that have blithely ignored the bloc’s internal dispute resolution and juridical mechanisms. Suffice it to say that member-countries have had to either threaten or go to the WTO dispute body to get satisfaction. Sanguinetti’s point, which is particularly problematic for a small country like Uruguay, is that the legal frameworks for important groupings such as Mercosur have become just so much window dressing in the face of presidential want and desire in big countries such as Brazil.

There is also an important foreign policy point in Sanguinetti’s comments. Brazilian diplomats are very clear that the international sovereignty norm is sacrosanct — one state may not intervene in the internal affairs of another state. Yet, this is precisely what has happened in the Paraguayan case. Indeed, the deeper irony is that while the historical case was that the political right pushed hardest for regime change, the tide has now shifted and it is the left that has the most pronouncements and interventions for its neighbours. This has been particularly evident in the Brazilian case where the willingness of Brazilian presidents and presidential advisors to make direct intervention in the internal political developments of other regional countries has been rising since 2003.

Taken its totality, the critique leveled by Sanguinetti goes a long way to explaining why the increasingly technocratic and regulatory sound states of Chile, Peru, Colombia and Mexico have bound together to for the Pacific Alliance rather than tying themselves more tightly to the ever-more politicized groupings such as Mercosur and even the now predominantly political Unasur. Why to the expense and pain of negotiating and signing onto rules and norms when they are unlikely to have any impact?

–Sean Burges

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Filed under Analysis, Argentina, Brazil, Democracy, Foreign Policy / Diplomacy, MERCOSUR, Paraguay, Uruguay

Argentina in another trade spat, now with Mexico

The trade policies put in place by the Kirchner government in Argentina have ruffled quite a few feathers. Earlier in 2012 ongoing tit-for-tat trade squabbles with Brazil caused former Brazilian Ambassador Rubens Barbosa to break with his long tradition of supportive comments on Mercosur to quip that Argentina’s behaviour could well kill the bloc. With bald trade restrictions ruled out by Mercosur regulations, both Argentina and Brazil degenerated into a hyper-orthodox approach to border inspections and adjudications on import licenses that were all but guaranteed to take the maximum period permissible. This barking definitely had bite, with some firms such as potato chip maker McCains choosing to simply close their export-directed plants rather than deal with the sustained disruptions.

Mexico has now jumped into the fray, taking Argentina to the WTO’s Dispute Settlement Body on the charge that the Kirchner government’s measures applied to the importation of goods “restrict the imports of goods and discriminate between national and imported goods” and “don’t seem to be related with the implementation of any measure justified under the WTO Agreement”.

This now brings to four the countries questioning Argentina’s current import policies. Mexico joins the EU, USA and Japan with measures before the WTO DSB. Brazil is making its own noises bilaterally.

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Hard Questions for Chávez Over Refinery Fire

Brazilian centre-right daily O Estado de São Paulo has used its editorial page to unleash a fusillade against the capacity of Venezuela to maintain its oil infrastructure. The editorial board draws particular attention to government claims that the Amuay refinery was maintained properly and internal PDVSA documents that suggest that repairs were delayed due to a shortage of materials.

While the Estadão has not exactly been a friend to Chávez, the tone of the editorial does resurrect long-standing and legitimate worries that oil production capacity in Venezuela has actually declined under Bolivarian management. As far back as 2006, the influential business intelligence and consulting firm Oxford Analytica has been raising concerns about what exactly is going on with PDVSA (and raised similar issues earlier this year). Similar issues were raised three years later by the Council on Foreign Relations, which pointed to indications that production capacity had fallen.

For Venezuelans the tragedy at the Amuay refinery may well extend beyond the horrific loss of life this week. Irrespective of what you think about Chávez’s politics, the reality is that he has done quite a bit to help human development in Venezuela and raise the self confidence of the poor to the point where they can and do think about making new realities for themselves. State help has been essential for this and will remain critical for continued human development progress. If oil production is falling and, as Estadão charges, the necessary production infrastructure is collapsing, then Venezuela is in real danger of losing a massive income stream that can be used to help drive sustainable national development. It will be interesting to see if this issue comes up and is seriously addressed during the current presidential campaign.

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Brazil increases aid and loans to African countries

As Brazil shifts from aid recipient to aid provider, African countries are an obvious target, the NY Times reports.

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OAS sends mission to accompany the electoral process in Paraguay

The Secretary General of the Organization of American States (OAS), José Miguel Insulza, today announced the dispatch of a mission to Paraguay to accompany and observe the electoral process in the country that will conclude with the general elections of April 21, 2013.

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Lula on the bench: guilty or not guilty?

As politicians and ad men implicated in the mensalão scandal are tried in Brazil’s Supreme Court, former President Lula’s reputation is at stake

 

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