New Wave of Washington Consensus in Latin America

By Don Quijones, Spain & Mexico, editor at WOLF STREET. His blog: Raging Bull-Shit.

Something big is going down in Latin America: A slow-moving tectonic shift threatens to split the continent down the middle on ideological lines. On the Atlantic side are Mercosur nations such as Brazil, Argentina, Uruguay and Venezuela, whose governments are by and large statist and protectionist. On the opposite side are the four signatories of the recently signed Pacific Alliance, Mexico, Colombia, Peru and Chile – countries that are, in the words of the Financial Times, more “reform” and “liberal” minded.

In the first decade of this fledgling century, the Mercosur nations of the South were in ascendance. Thanks to massive global demand for commodities, especially from the East, the region’s economies were lifted by a rising tide of prosperity. What’s more, under Chavez’s bombastic leadership, most of the governments of the region united around a more-or-less common sense of purpose – the most important of which was to resist U.S. influence in the region.

However, if recent years are any indication, the good times may well be fading for the Atlantic-board nations. With Chavez long gone, a highly polarized Venezuela faces the bleak prospect of social breakdown, a coup d’état or even a civil war. Further south, Argentina is once again on the brink of financial abyss, and even Brazil, long the engine of Latin American growth, was only able to muster a measly 0.2% GDP growth in the first quarter of 2014.

As the fortunes of the Mercosur nations stagnate and sag, the economies of the Pacific Alliance appear to be growing from strength to strength – at least according to the international financial press. The alliance is growing at a faster rate and boasts lower inflation and fiscal deficits than the Mercosur bloc. And while the main priority of the Mercosur bloc has been consumption, often resulting in supply bottlenecks, the economies of PA members have been more geared toward investment.

“The Alliance has been an excellent tool for promoting open and competitive economic policies in Latin America,” says Víctor Becerra, project coordinator for Mexico at the Friedrich Naumann Foundation (FNF-Mexico). “In each of the four member countries, it has shown that the free market, with the least possible intervention, works; and works very well.”

With Mexico expected to be the main beneficiary of the trade agreement, Becerra has good reason to be excited. The North American powerhouse already enjoys a $5 billion annual trade surplus with fellow alliance-member Colombia, which is likely to increase further under the new arrangements.

A Hard Spin

Mexico’s gain, however, will be Colombia’s loss. According to Colombian economic analyst Aurelio Suarez, the countries of the alliance – just like the economies of the EU – are not remotely on an equal footing. After 24 years of free trade agreements with the U.S. and other Latin American economies, Colombia is chronically dependent on the international markets for the vast bulk of the food it consumes. And this situation is likely to deteriorate further with the signing of the Pacific Alliance. According to some estimates, up to 48% of the country’s agricultural produce and 1.2 million jobs in the sector are now at risk.

“This is a continuation of the same model of unfettered big capital that has already failed across the globe,” warns Suarez. “What’s really striking is not only that it’s more of the same, it’s the propaganda being used to justify it. I’m absolutely terrified by the speculative campaign that has been created around the Pacific Alliance.”

As happened in the early years of NAFTA adoption, all talk of “free trade” and “economic integration” is infused with a clear, propagandistic bent. A case in point: almost all articles and reports on the Pacific Alliance emphasize that the four nations of the alliance now represent the 8th largest economy in the world. On the surface this may sound impressive. What is rarely mentioned, however, is that one of the member countries, Mexico, is already the 11th largest economy in the world – suddenly not quite so impressive!

What’s also hardly mentioned is the fact that before forming the Pacific Alliance in 2013, all four member economies – Mexico, Colombia, Peru and Chile – already had bilateral trade agreements with one another. Which begs the question: why all the furore over a trade agreement that promises little in the way of trade expansion between the constituent economies?

The answer to that question is simple – the Pacific Alliance is about a whole lot more than just expanding trade within Latin America: it is about opening up the region to Asian and North American markets as well as transforming the continent’s geopolitical landscape. It is also geared at reinforcing U.S. influence and stymieing Chinese expansion in the region.

NAFTA Goes South

For many years U.S. influence has been on the wane in South America, a region that Washington has traditionally considered its own backyard, to be tinkered in at its own convenience and pleasure. The two main reasons for this were the rise of governments in South America that were more resistant – if not downright hostile – to U.S. meddling, and the diversion of U.S. attention from Latin America to the Middle East.

The vacuum left behind has been filled primarily by China, whose volume of trade with Latin America increased a staggering 21-fold between 2000 and 2012. This trade is not only limited to fellow BRIC-nation Brazil and its Mercosur partners, but also includes the four Pacific Alliance economies – in particular Mexico, with which it recently signed the Tequila Pact.

With China expanding its influence in this critical, resource-rich region and Brazil fast consolidating its power, the U.S. has suddenly rediscovered an interest in its own backyard. Just days after the Pacific Alliance Summit in July 2013, Vice President Joe Biden praised the progress the economic bloc had made and expressed interest in the U.S. joining as an observer country – which it now is, along with 31 other nations including the United Kingdom, Australia, New Zealand, Spain, Japan and Israel. Also on board are the Latin American countries Uruguay, Costa Rica and Panama, which may well apply to join the alliance in the coming years.

Fellow NAFTA-member Canada is also an observer country, and is also considering becoming a full-fledged member – a course of action that may not be necessary in the end. Instead, the governments of the U.S. and Canada could just merge the Alliance with NAFTA, as Council of the Americas Vice President Eric Farnsworth has advocated:

With the 20 year anniversary of the North American Free Trade Agreement…, the leaders of NAFTA and the Pacific Alliance should consider meeting to forge a pragmatic economic agenda for cooperation. This offers an important opportunity to kick-start a common agenda with willing partners that has languished since the FTAA [the Free Trade Agreement of the Americas that never really got off the ground].

Such a grouping would be a powerful signal that willing partners in the hemisphere will not allow themselves to be held back by the lowest common denominator of rejectionist nations like Ecuador or Venezuela… It would also offer a means to improve market efficiencies and update NAFTA without the need to re-open or re-negotiate its provisions.

So, there you have it! No need for negotiations, and probably no need to consult Congress, or for that matter the 320 million Americans it’s supposed to represent – most of whom would, if ever given the choice (which they never will be), vote against expanding NAFTA! Melding NAFTA with the Pacific Alliance would have the added advantage of advancing the U.S.’s goal of establishing the Trans Pacific Partnership (TPP), which is currently languishing in Congress after a huge public backlash.

And so the slow, quiet march toward ever-increasing economic interconnectivity and interdependence continues. The big winners in all this – transnational corporations, too-big-to-fail banks, and billionaire investors – cheer raucously from the sidelines. Their mantra: “Free Trade, the cure to all ills; Free Trade, the cure to all ills…”

But don’t be fooled: this is not about free trade; indeed, it never was! The two biggest advocates of free trade on this planet – the U.S. and Europe – have never practiced what they preach. Their largest and most successful export sectors, in particular military and hi-tech goods and agriculture, are all products of massive government investment subsidization.

What this is about is naked power and control. It is about controlling the American continent’s vast wealth of resources, and it is about writing a new constitution for what Jeff Faux terms the “constitutional economy.” It is a constitution that protects the rights of only one type of citizen – the multinational corporate investor. And the economy it enshrines is an economy in which increasingly the rest of us – workers, consumers, pensioners, students, small-business owners, the self-employed and the unemployed – have little or no place. By Don Quijones.

Negotiations behind closed doors are under way to water down all forms of financial regulation on both sides of the Atlantic via the Transatlantic Trade and Investment Treaty. Leading the charge: not the US government, but an unholy alliance between the European Commission, Wall Street, and the City of London. Read…. A Dark Alliance: European Union Joins Forces With Wall Street


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  2 comments for “New Wave of Washington Consensus in Latin America

  1. Tk69 says:

    The author forgets that all of these economies are mercantile. All of the “positioning” is only to keep those that rule and their political supporters in power, under the illusion of economic prosperity. It is not really about free trade but how to acquire the goodies and to keep competitors out so that they can be given away. But this is changing as they too have hit diminishing returns. Free trade trumps mercantile economies ever time they are tried.

  2. chistletoe says:

    so I have been vacationing, driving, hiking, playing, touristing, out in the Brazilian countryside for about a month now … grass roots observations … so many people are out-of-the-way sincere, friendly, outgoing, helpful, flirtatious and fun … so few speak any english, they all ask if I am german or french…. the landscape is drop dead gorgeous, as are the women … still one sees the insidious creep of the multinational corporate domination and control, sneaking in everywhere … cigarettes, billboards, soap operas on tv, smart phones, police presence, coca cola, johnson and johnson, visa, chevrolet, the world cup, mcdonalds, comfort inns, speed cameras, fundamentalist christian storefronts, and youtube videos …

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