THE WAVE OF POPULISM IN LATIN AMERICA AND THE MERCOSUL

ABSTRACT

The MERCOSUL[1] (Mercado Comum do Sul) was created on March 26, 1991, with the treaty of Asunción establishing a Common Market between the Argentine Republic, the Federal Republic of Brazil, the Republic of Paraguay and the Eastern Republic of Uruguay. The main objective was to create a regional integration trough the reduction of customs duties, the creation of a common tax, common commercial policy, co-operation and co-ordination of macroeconomic and sectorial policies, and necessary changes to legislations.

After 26 years of existence, many things were accomplished. From a unified border, allowing its members to move freely between countries, to the main economic goal of reduction in barriers to trade, especially custom duties, it is accurate to say that, in comparison to other economic integrations and agreements in the world from the same decade, the MERCOSUL is definitely not a failure attempt to regional integration. The question that remains is if it is possible to say that the MERCOSUL is a successful story or not. There is no doubt that the MERCOSUL was extremely important for its members when implemented, but to be considered successful, a regional integration depends not only on its importance to the region but also its achievements. Many scholars that study regional integration tend to compare different regions and analyze the success of the integration confronting one region to the other. I believe this approach has two main weaknesses: first, when comparing the success of different regions, we disregard the commitment the members of that region made with themselves. Every treaty and agreement have its purpose and they are different from one another. This means that if we compare two different regions, we are not analyzing its capacity to succeed in its own commitment, but the number of achievements compared to other regions. Second, we do not consider the historical, political, economic and social difference between the regions. When comparing different regions with different historical process of integration, we are inclined to put aside the socio-economic differences between its members, and those differences are one of the most important challenges for regional integration.

In this article, I will analyze the main aspects of the MERCOSUL and verify the success of this regional integration under three spheres: political, economic and social.

Historical Approach: From dictatorial regimes to stabilized democracies

To understand where MERCOSUL stands today, it is necessary to return a few decades in time. By the end of the 60s, the world was divided between two superpowers: USA (United States of America) and the USSR (Union of Soviet Socialist Republics). This bipolar world was fighting for two different political ideologies, the capitalism, defended by the USA and the communism, created by the USSR. In addition, after the World War II, the military strength was very much based on advent of the atomic bomb, first developed by the USA and used in 1945 to attack Japan, which culminated in the surrender of the Japanese Army, and a few years later, the USSR successfully detonates its first atomic bomb in 1949. The world was not only political and ideological divided but also military and this period is known as the Cold War. In that time, the traditional form of war was no match for the destruction power of the atomic bomb and many countries started becoming allies to this super powers not only as a form of protection but also because of the regional influence of the two superpowers.

Mainly because of geographical reasons, the United States exerted its regional influence in most of all Central and South American countries. The USSR had accomplished to influence Cuba ideologically during the 50s and the United States were concerned that this influence could eventually spread to other Latin America countries. To prevent that from happening, the U.S. policy of democracy promotion in Latin America has consisted of promoting governments that are favorable to U.S. political and economic interests rather than democracy itself. While the U.S. claims to have a tradition of “promoting democracy” in Latin America, the intervention has been questionable and inconsistent. U.S. support for Latin American regimes has coincided with favorable economic policies rather than with the strength of democracy within a country. Relations between the U.S. and Latin America show that the U.S. has used democracy promotion as cover for U.S. imperialism in Latin America. During the Cold War, the U.S. supported anti-communist regimes that were often undemocratic because they were capable of protecting U.S. interests. When democratic governments within Latin America have veered too far from this outline for democracy and have threatened U.S. interests, the U.S. has intervened to undermine and attempt to overthrow these governments. This happened for example, in Brazil with the coup d'état that led to the overthrow of President João Goulart by part of the Armed Forces in 1963, in Bolivia by Colonel Hugo Suárez in 1971, in Chile with Augusto Pinochet’s military coup, which overthrew democratically elected Chilean President Salvador Allende in 1973, and Alberto Fujimori’s presidential coup in Peru in 1992. When analyzing the MERCOSUL members, all of them experienced dictatorial regimes during that time, the 1976 Argentine coup d'état that remained in power until 10 December 1983, the civic-military dictatorship of Uruguay that ruled from 1973 until 1985, and finally the longest was Paraguay from 1936 until 1992 when the constitution established a democratic system.  At the onset of the so-called “third wave” of democracy in 1978, the only democratic regimes in Latin America were Costa Rica, Colombia, and Venezuela. But by 1995, all the countries in the region, with the notable exception of Cuba, were democracies or semi-democracies. Since the mid-1980s, we have seen a wave of democratization in Latin America and an embrace of market democracy. United States relations in Latin America since the end of the Cold War reveal that the U.S. is merely changing its means of establishing U.S. friendly governments by promoting low-intensity democracy. According to Gilbert, “this low-intensity democracy is characteristic polyarchy, in which elites who adhere to the neoliberal model control the government”. Furthermore, per Scott Mainwaring and Aníbal Pérez-Liñán, two other authors that analyzed the re-democratization of Latin America in the late 80s, “radical actors became less common and less powerful, and moderation became the tone of the day in most of Latin America,” and that “after 1978, more actors were committed to democracy, and far fewer normatively embraced the ideals of a revolutionary ‘dictatorship of the proletariat’ or a right–wing dictatorship.” In other words, the hemispheric political environment naturally became more hospitable to democracy.

Integration agreements aimed at creating free trade areas, customs unions, or common markets are not new in Latin America, but they have lacked an important necessary base to reach their goal: a paymaster. During mostly the 1960s and 70s few signs of progress were made in the direction of eliminating barriers to trade mainly because the governments were accustomed to thinking of protectionism as a stimulus to growth, and so were reluctant to offer long lists of goods for liberalization. Moreover, most of the military dictatorial regimes stimulated the rebirth of nationalism, and many efforts were made to nationalize companies and natural resources, especially related to energy. This selfishness was one of the biggest obstacles to overcome and it continued until the end of the dictatorial regimes era in Latin America in the late 1980s when a wave of democratization and freedom united the region for the first time. Argentina and Brazil started negotiating integrated custom unions and the reduction of barriers to trade, putting aside over 150 years of suspicious and rivalry. Quickly Paraguay and Uruguay joined the conversation, resulting in the treaty of Asunción signed on March 26, 1991, that created the MERCOSUL. The treaty came into force on January 1st, 1995 and in 1996 two other countries were already accepted as Associated States: Chile and Bolivia. The first results of the integration came also very quickly. The share of intraregional trade in the total exports of MERCOSUL countries increased from 8 to 21% between 1991 and 1996[2]. This fast integration brought two notable achievements to the model of integration: that the MERCOSUL was broadening[3] by adding new members and deepening[4] by creating meaningful institutional infrastructures and customs unions.

By the beginning of the 2000s, a change in direction happened in Latin America. Many countries started to shift from a center-right political view to a more left populist political view. This shift is understandable, once the countries were somehow economic and political stable, but there was an enormous problem in the social sphere. There was a national clamor in the streets for a more just and social approach to politics, and the figure of the proletariat worker was a strong convincement leverage of most Labor parties. This successful strategy led in 2002 to the election of Luis Inácio Lula da Silva, a former factory worker and syndicate leader, to president of Brazil from the Labor Party (PT), after three failure attempts to be elected, first in 1988 against Fernando Collor and again in 1994 and 1998 against Fernando Henrique Cardoso. The same happened in Argentina, when in 2003, Néstor Kirchner from the Justicialist Party, a Peronist political party based on the Labor Party, was elected President. Also in Uruguay, where Tabaré Vázquez was elected in 2004. He became the first Uruguayan president from a left-wing party, and thus the first one who did not belong to the so-called "traditional" parties, the National (Blanco) and Colorado parties. He also had the support of the President of Brazil, Luiz Inácio Lula da Silva, likewise a center-leftist. In 2003, the Paraguayan Nicanor Duarte was elected President of Paraguay. He pursued policies which were somewhat more left-wing than has been the case for the Colorado Party over its 60-year rule of Paraguay. At least in speeches, he had opposed free trade and reached out to regional Latin American countries with left-leaning governments. And many other examples as Venezuela, with the election of Hugo Chávez, who was member of the United Socialist Party, and focus his government on enacting social reforms and the nationalization of key industries, such as oil, and Bolivia, with the election of Evo Morales in 2006, that remain in power until today ruling almost in an authoritarian regime, emphasized in nationalism, anti-imperialism, and anti-neoliberalism, whose inauguration was attended by various heads of state, including Kirchner, Chávez, Brazil's Lula da Silva, and Chile's Ricardo Lagos. This massive unisonous change in the region was later called the Populism Wave in Latin America. This process of almost antagonism to the right political view is very understandable considering the historical context explained before, but somehow created barriers to the international trade and to the evolution of MERCOSUL.

In my analysis, the creation of MERCOSUL was important for its members for three main factors.

Political: Return to democracy. The rise of Nationalism.

First, for political reasons. As mentioned before, the region had experienced a very long time of dictatorial regimes and was extremely politically fragile. That was the first time in decades the population in many Latin American countries could vote and exercise their democratic rights, for instance, Brazil had recently approved its new constitution in 1988, after a long two decades of the military regime. The end of the military dictatorships era in Latin America created a unique moment in international relations where, after 150 years of suspicious and rivalry, a fundamental shift occurred in the proximity of Brazil and Argentina to seek new levels of regional integration. This was fundamental for securing the new fragile democratic regimes. In addition, the Latin America countries needed to politically present themselves to the world and embrace new diplomatic relations. The MERSOCUL was a way for these countries to increase their political and bargain power with other regions and to show to the world that they had reached a democratic maturity, following the European example of Cooperation. One problem from the political point of view is that no harmonization was made on the legislative aspects of the state members. Even though inspired by the European Union, the MERCOSUL has not the same institutions or the harmonization to further development of integration. For instance, the European Union has a European Parliament, a body with legislative and supervisory power, that works harmonizing legislation between state members; a Court of Justice of the European Union, responsible for ensuring EU law is interpreted and applied the same in every EU country; and the European commission, responsible to promote the general interest of the EU by proposing and enforcing legislation as well as by implementing policies and the EU budget. All these institutions are absent in the MERCOSUL or do not have binding power on the state members, which makes the integration efforts more difficult.

Economic: Economic boom. Differences in development conditions.

Second, for economic reasons. After the long period of authoritarian regimes, the economic situation in many Latin American countries was stagnated or deteriorating. Recovering the economy was one of the challenges the recently elected governments had to deal. The average GDP Growth of Argentina, Brazil, Paraguay and Uruguay went from 7.4% in 1986 to -0.3% in 1990. Inflation was enormously high, reaching 3,079% in the year of 1989 in Argentina and 2,947% in the year of 1990 in Brazil. By 1995, when the treaty came into force, Brazil was also trying to implement its fourth attempt to control the inflation and stimulate the economy, called the “Plano Real”. In this wild economic scenario, it is safe to say that the MERCOSUL was somehow important for its members. The share of intraregional trade in the total exports of MERCOSUL countries increased from 8 to 21% between 1991 and 1996[5]. Exports increased in all state members when we look the Export Volume Index[6]. Brazil, for instance, departed from around 72 points in 1995 to more than 209 in 2015, and Paraguay, who had the biggest growth, started with 96 points and reached 280 in 2015[7]. More remarkable was the shift of goods being traded. In 1995 Paraguay and Uruguay exported 36.4% and 14.9% respectively in Agricultural raw materials, but by 2014, Paraguay and Uruguay Agricultural raw materials represented only 1.6% and 9.6% respectively of its exports[8]. This shift is also noticeable in the increase of service exports from Argentina and Brazil, that raised from 3,3B and 4,9B US$ in 1995 to 13,9B and 33B respectively in 2015, more than 450% in the case of Brazil[9]. On the other hand, this also exposed one problem that still pending in MERCOSUL that is the extremely asymmetrical nature of the integration efforts. A single country, Brazil, accounts for about 71% of the MERCOSUL domestic product (GDP)[10] and raises questions about the health of the economic integration.

Social: Economic Evolution. Differences in social conditions, freedom of speech and human rights.

Third, for social reasons. The trauma of those years where military dictatorial regimes ruled in Latin America is marked forever in the history when more than 30.000 people had forced disappearances only in Chile, and many others were killed. The return to democratic regimes brought, in my opinion, two important achievements. First, the reestablishment of Freedom of speech and second the basic declaration of human rights, both guaranteed in most Latin America countries constitution. This dramatically improved protection of fundamental rights that for a long period were unthinkable, and somehow the MERCOSUL was a legislative regulator of the member states assuring democratic regimes would remain at most democratic. In addition, analyzing the preamble of the Treaty of Asunción, we notice the ultimate importance of social sphere, it states:

“CONSIDERING that the expansion of their domestic markets, through integration, is a vital prerequisite for accelerating their processes of economic development with social justice”

mercosul01.jpg

The Populism Wave in Latin America

Also in my analysis became evident that somehow the wave of populism in Latin America slowed down the rapid rhythm of expansion and growth of MERCOSUL experienced during the beginning of the 1990s. The interference of the populism is not directly related to economic factors, even though a few episodes could be mentioned in this sphere. From an economic point of view, most Latin America countries experienced a significant growth during the year 2000s. From 1995 until 2015, Brazil’s GDP increased 126%, Paraguay’s 199%, Argentina’s 126%, and Uruguay’s 177%[11]. The growth was more accentuated until 2009 when the global economic crisis hit the United States, Europe, and China. This exceptional growth was a result of a global strong economy. The World grew in average 4% from 1994 until pre-crisis in 2009 and the MERSOCUL grew 3% in the same period[12]. In other words, analyzing strictly the economic indicators, the populism wave had little to do with the economic growth during the 2000s. What is also possible to infer is that, even though the populist wave in economic terms had little interference in the favorable global economic scenario, the economic projection for the region was higher than the actual results, demonstrating that the performance of the Latin America countries and the MERCOSUL could have been better if political interferences direct related to the populism wave may not have occurred[13].

The most significant barrier to further integration in MERCOSUL during the 2000s was Political. One of the reasons, mentioned before, was the nationalism that accompanied the populist wave. This nationalism created barriers to trade and further integration in the region because focused in the maintenance or creation of national companies, especially in the energy sector, such as Petrobrás and Vale in Brazil or the Petróleos de Venezuela in Venezuela. But not only nationalism was in my analyses responsible for the more moderate tone in the MERCOSUL. Also, the weakening of the democratic institutions in the populist presidencies, contribute to the less intense process of integration. In internal politics, an alarming number of corruption scandals erupted in Latin America. In Brazil, the biggest country in MERCOSUL, the “Lava-Jato” operation arrested many political figures and continues to investigate many others, including the ex-president Luis Inácio Lula da Silva, who alleged gave preference for national companies in the national and international arena for personal gains and favors. In addition, the ex-president Dilma Rousseff, who is member of the Lula da Silva’s Labor party and his protégé, and was elected after him, was impeached in the end of 2016, in the middle of her second term, for using the public banks to finance social programs, something that is explicit prohibited by the constitution. Her impeachment was very political based, the government had no more support from the Congress, who was very concerned that with the corruption scandals, the three independent powers (Executive, Legislative and Judicial) were weakened. The weakening of the democratic institutions played a major role in the process of slowing down the MERCOSUL.

Unfortunately, political problems were not limited to internal issues but also external political issues. In 1997, Brazil started the construction of the US$ 8 billion pipelines between Brazil and Bolivia. By 2001 the Brazilian national Company Petrobrás was responsible for 100% of all Bolivian gas and 60% of the Diesel, reaching 18% of the national GDP of Bolivia. In 2006, the recently elected president Evo Morales unilaterally nationalize the Oil and Gas sector, paying half of the value of the company’s infrastructure value, creating an unprecedented new populism-nationalism tyranny in Latin America. One year later, Venezuela applied for membership in the MERCOSUL, but its entry was not ratified by Paraguay, although it was ratified by Argentina, Brazil, and Uruguay. The entrance of Venezuela in the regional integration was defended by Argentina, Uruguay and especially Brazil because of its energy resources. Venezuela is considered a key member of the Mercosur due to its energy resources, including natural gas and oil.  Brazil at the time had great investments in the National Gas Company Petrobras. Venezuela is also an important economic market for Brazil because of a favorable balance of trade. However, in June 2012 Paraguay was suspended from Mercosur for an alleged coup d'état and the violation of the Democratic Clause of Mercosur, so Venezuela's admission, already approved by the remaining members, became effective on July 31. Evidently, Paraguay did not recognize the entrance of Venezuela and especially refused to accept Venezuela’s presidency in the economic block. The presidents of Argentina, Brazil, Uruguay were by that time, all populist friends that supported the maintenance of Hugo Chavez presidency.

On August 2016, the presidents of Brazil, Argentina, and Paraguay, while present in Rio de Janeiro for the Olympic Games, met to discuss suspending Venezuela from Mercosur. The three countries are in doubt about whether Venezuela is complying with the union's requirements for full membership, citing Human Rights violations among other issues. Moreover, Venezuela was rejected from assuming the presidency of MERCOSUR by those three countries, prompting a dispute that continues in full throttle toward the end of the year.

One enlargement process to include Venezuela in 2007, and finally, the suspension of Venezuela from the economic block shows that the flame from MERCOSUL seems to be burning slower. Nowadays, five countries have already gained Associate Member status (Chile, Bolivia, Colombia, Ecuador and Peru), and two other gained status as Observer States (New Zealand and Mexico).

Final Analysis and Conclusion

There is no doubt that the MERCOSUL was extremely important for its members when implemented and today it is still widely accepted that free markets and democracy are important components of Latin America’s strategy for achieving economic and political consolidation. I believe that the block did not reach its maximum potential. The exponential start of MERCOSUL transmitted a very positive message to the world and somehow created a high expectation for the region. To answer my question from the beginning of the article: Is it possible to say that the MERCOSUL is a successful story? In my analysis, the answer is not yet. It has had many incredible achievements in the beginning as seen in this article and was the most successful integration story in the American continent, but the populism wave slowed down the flame of the integration for a decade. Many will question this analysis and use the economic results as evidence to support the success of the populist regimes during the years 2000, but as defended in this article, the positive economic results were more linked to a favorable global pre-crisis scenario, rather than a specific action from the populist governments. It is true that in general, one great accomplishment of the populism is the social ascendance. On the other hand, deep political problems and corruption resulted in the weakening of the democratic institutions, that consequently spread to the international political arena, being one of these arenas the MERCOSUL. The result was that further bilateral agreements with other countries and regions became less common or important, economic development slowed down, a consumption bubble was created in may countries, exports stabilized and are struggling to increase, industry has not been modernized, and production costs have increased especially with legislative protectionism of workers.

The last decade, was a lost decade for the MERCOSUL, but hopefully, and I believe in the potential of MERCOSUL, the lessons learned during this period will help mold the next decade, based on the principle of cooperation, integration and economic liberalization.

References:

- Walter Mattli. “The logic of Regional Integration: Europe and Beyond”, 1999.
- Fernando Henrique Cardoso. "América Latina: Governabilidade, globalização e políticas econômicas para além da crise”, 2009.
- Martin Van Clevend. “Transformation of War”, 1997.
- Scott Mainwaring and Aníbal Pérez-Liñán. “Democracies and Dictatorships in Latin America: Emergence, Survival, and Fall”, 2000
- Steven Gilbert. “The U.S. Policy of Democracy Promotion in Latin America”, 2008
- Carla Macario. “Export Growth in Latin America: Policies and Performance”, 2000
- Marcelo Fernandes de Oliveira. “MERCOSUL: atores politicos e grupos de interesse brasileiros”, 2003.
- Riordan Roett. “MERCOSUR: Regional Integration, World Markets”, 1999
- The World Bank Data Base. http://databank.worldbank.org/data/home.aspx


[1] MERCOSUR or MERCOSUL (Spanish: Mercado Común del Sur, Portuguese: Mercado Comum do Sul, Guarani: Ñemby Ñemuha, English: Southern Common Market)

[2] Share of Intraregional trade as mentioned in Lia Valls Pereira “Towards the Common Market of the South: Mercosur’s Origins, Evolution and Challenges”

[3] Broadening is understood in terms of the number of countries included under MERSOCUL preferences, whether as full or associate members.

[4] Deepening concerns the scope of the commitments undertaken, especially those that entail preferential economic treatment and the development of collective policy disciplines.

[5] Share of Intraregional trade as mentioned in Lia Valls Pereira “Towards the Common Market of the South: Mercosur’s Origins, Evolution and Challenges”

[6] Export volume indexes are derived from UNCTAD's volume index series and are the ratio of the export value indexes to the corresponding unit value indexes. Unit value indexes are based on data reported by countries that demonstrate consistency under UNCTAD quality controls, supplemented by UNCTAD’s estimates using the previous year’s trade values at the Standard International Trade Classification three-digit level as weights. To improve data coverage, especially for the latest periods, UNCTAD constructs a set of average prices indexes at the three-digit product classification of the Standard International Trade Classification revision 3 using UNCTAD’s Commodity Price Statistics, interna­tional and national sources, and UNCTAD secretariat estimates and calculates unit value indexes at the country level using the current year’s trade values as weights. For economies for which UNCTAD does not publish data, the export volume indexes (lines 72) in the IMF's International Financial Statistics are used.

[7] Check Annex I, chart “Export volume index (2000 = 100)”

[8] Check Annex I, chart “Agricultural raw materials exports (% of merchandise exports)”

[9] Check Annex I, chart “Service exports (BoP, current US$)”

[10] Check Annex I, Chart “Exports of Goods (cur. US$) 2015”

[11] Check Annex I, Chart “Exports of Goods (cur. US$) 2015”

[12] Check Annex I, Chart “GDP Growth (Annual %): World x MERCOSUL”

[13] This can be seen in the projection of GDP growth in the chart “MERCOSUL Countries GDP (Current US$)” represented by the highlighted yellow zone.