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Emerging Markets

Unity and disarray

The consensus view of Latin America is wrong. The region no longer cleaves to simple left-right ideology. And nothing shows this more starkly than the global financial crisis

In politics, as in economics, it’s easy to be simplistic. And that’s never more the case than when looking at Latin America. Neat descriptions of regional crises in terms of a battle between state-controlled economies and the free market or as left-right divides mostly miss the point. A great part of the economic and social issues don’t fit into tidy traditional boxes.

“The notion of competing blocs implies a degree of coherence, with one side holding a set of beliefs and ways of governing, and the other an opposite set of views. I don’t see this,” says Michael Shifter, vice-president for policy and director of the Andean programme at the Inter-American Dialogue.

He points to Colombia as an example. The government of Alvaro Uribe, the president, is squarely in the free-market camp. Colombia has for years been the closest US ally in the region. Washington’s failure to approve a free-trade agreement with Colombia has not tarnished the relations too much – as evidenced by the recent deal for the US military to use Colombian bases.



SECOND CHANCE

But free-market advocate or not, Uribe is also similar to his left-wing neighbours in Bolivia, Ecuador and Venezuela, in trying to stay in office as long as possible. The Colombian constitution has already been changed to let him run for a second four-year term in 2006.

A further extension is more than likely, with a referendum for voters to decide if the constitution should be changed once more and he can run again in 2010. Uribe’s public support in mid-September polls was 70% – nearly 60% said they would vote for him again, given the chance, if he were to run for office next year.

The other Andean nations, with the exception of Peru, have done the same thing.

Venezuela’s president, Hugo Chavez, can now run indefinitely after approval in his second referendum. And in Ecuador, Rafael Correa was inaugurated in August to a full four-year term. He took office just two years ago, but has campaigned to change the constitution, to spend further terms as president.

In Bolivia, Evo Morales began his presidency in 2006. This year he held a referendum to adopt a constitution allowing re-election. He will stand for another four-term term in December and looks set to win the election.

But there is also a drive towards greater regional economic integration.

John Walsh, a senior associate at the Washington Office on Latin America says the overall mood is one of pragmatism. He says this is evident in the dealings between, for example, Chavez and other regional leaders. “The attitude is if Chavez can help, great. No one is pushing him away when he offers assistance, but this does not mean that countries embrace his policies or ideas,” says Walsh.

Some analysts believe ideological differences may not stand in the way of better economic unity. “Integration cannot depend on current political or ideological differences. We are already seeing some indications of this,” says Arnoldo Rozenberg, senior researcher at the business school of Peru’s Catholic University.

Chilean-Peruvian relations highlight Rozenberg’s thesis. Peru and Chile negotiated a free-trade agreement in 2006, which came into effect this March. Chile is Peru’s second-largest trading partner in Latin America, with bilateral trade of $781 million in the first six months of this year. Chilean companies dominate Peru’s retail and transportation sectors, and are gaining strength in others.

The business deals and new free-trade agreement, however, have not eased tensions between the two countries, which date back more than a century. In the most recent flare-up in August, Peru accused Chile of secret negotiations with Bolivia, to allow it access to the sea. This is part of a long-running battle in the International Court in The Hague over landlocked Bolivia’s maritime border.

Opposition parties in Peru have used this to attack the free-trade agreement, which they say is illegal. A lawsuit on this is pending in the Constitutional Tribunal, the country’s highest court. The opposition argues that congressional legislation not a presidential decree is needed to implement the agreement.

A mid-September poll by the University of Lima found that 94% of Peruvians had little or no trust in the Chilean government, while 92% felt the same way about Chileans in general.



FURTHER TENSIONS

Tensions are highest in the northern Andes, with friction between Colombia, Ecuador and Venezuela after the 2008 raid by Colombian troops into Ecuadorian territory to kill FARC (Revolutionary Armed Forces of Colombia) commander Raul Reyes.

Ecuador and Venezuela have severed diplomatic relations with Colombia several times since then. The most recent scuffle involved Colombia’s decision to let the US use some of its military installations. Venezuela’s Chavez claims this is a ploy by the US government to set up bases and invade his country.

Chavez says in public that he wants to limit trade with Colombia, but the commercial relationship between the countries has not suffered despite the deterioration of diplomatic ties. The same holds true with Ecuador, despite the introduction of new tariffs to Colombian products this year.

Colombia exported $6.1 billion of goods to Venezuela in 2008 and $2.2 billion through to May, only 1% off the same five-month period last year. Colombia exported $1.5 billion of products to Ecuador in 2008. Exports were down 4.5% in the first quarter of this year.



UNASUR UNITY

One way to improve regional unity is through the Union of South American Nations (Unasur), which was formally launched in 2008. A Unasur summit held in August in Argentina lowered tensions over the US military presence in Colombia, and allowed Bolivian, Chilean and Peruvian leaders to tone down the rhetoric in their own dispute.

“Unasur is a far cry from the original concept, which was modelled on a European Union to work on issues of economic development, trade, defence and the like. It is not institutionally strong, but it has done some useful work – it is good that it exists,” says Shifter.

Unasur has not been rapped like other regional bodies, particularly the Organization of American States (OAS), but that may be because it is still in its infancy. The most recent crisis facing the OAS has been its inability to deal with the coup that toppled Manuel Zelaya, the president of Honduras.

Walsh says OAS is a creature of its member states and its failures stem from its inability to reach consensus. “The OAS is easy to criticize, because its failures and not its successes are what people see,” he says. “Challenges in the region have morphed, with democratic rule under threat from an annihilation of checks and balances by governments themselves and not outside forces.”

Forthcoming elections, and the debate that they engender, mean that multilateral institutions are likely to face new tests, in this respect.

The fight has already begun in Peru, which still has 18 months to go before the next presidential race. The economy took a huge hit in 2009. Growth through July was only 0.09% – a far cry from the 5% forecast and 10% growth achieved the previous year.

President Alan Garcia says Peru would be in worse shape if he had not stuck to the free-market model in place since the early 1990s. He said in mid-September that Peru was on its way out of being a third world nation. Ernesto Gonzalez, head of corporate affairs for Interbank, Peru’s fourth-largest bank, says the country needs to stick to its economic guns if it is to consolidate what has been achieved.

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