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Tuesday, January 23, 2007

Venezuela politics: Hijacking Mercosur


Many saw it coming: As soon as Venezuela was allowed to enter the Southern Common Market (Mercosur) as a full member last year, President Hugo Chávez would attempt to radicalise the trading group’s future course and mission. Their prediction came true at the January 18th-19th summit of South American leaders in Rio de Janeiro, where Mr Chávez set about determinedly to make his presence felt. The Mercosur group, already plagued by periodic trade tensions and internal differences, is now at risk of being further divided between the Venezuelan and his allies—who see a more revolutionary political role for Mercosur—and those who want economic integration to remain its chief goal.

Venezuela formally joined Mercosur in July 2006, three months after pulling out of the Andean Community (Ancom), a much older regional trading bloc that includes Colombia, Peru, Bolivia and Ecuador. It would have been difficult for Venezuela to comply with the tariff and other legal requirements of both Ancom and Mercosur. But Mr Chávez preferred to cite political reasons, saying that the free-trade agreements concluded between Peru and Colombia and the US had undermined Ancom. Mr Chávez also abandoned the Group of Three, formed some years ago with Colombia and Mexico.

Entry into Mercosur, a larger and more successful trading group and customs union, also better suits Mr Chávez’s grand political designs. These include exporting his socialist-revolution-in-progress as well as his “Bolivarian” ideal of uniting Latin America into a single—and anti-American—political bloc.

Mr Chávez’s ally, Bolivia’s leftist President Evo Morales, supported the Venezuelan at the summit. Bolivia is presently an associate member of Mercosur (as are Chile, Peru, Colombia and Ecuador) and is expected to be the next country to apply for full membership. But other countries were less comfortable with Mr Chávez’s grandstanding.

At the meeting, which was attended by 11 of South America’s 12 heads of state, he said that Mercosur, which has five full members and several associate members, needed to be reformed and pushed it to adopt his ideological, anti-imperialist vision. His aggressiveness came despite the fact that Venezuela is the newest Mercosur partner and has yet to comply with all of the conditions for membership, such as bringing its import duties in line with the entity’s common external tariff (CET) system.

Moreover, as commitment to democratic practices is another requisite for membership, Mr Chávez’s moves at home to centralise authority (he already controls most key institutions and is now seeking new decree powers) is raising alarm bells about Venezuela’s desire to adhere to the organisation’s requirements.

Troubled group

Publicly, Mercosur’s founding four members—Brazil, Argentina, Paraguay and Uruguay—seem to be treading lightly around their new partner. Privately, however, politicians from these countries are said to have voiced worries about Mr Chávez’s bid to put his stamp on the organisation. Some see him as an agitator who will destabilise the entity, adding to its existing troubles.

Mercosur was founded in 1991, and its five full members comprise some 250m people—65% of South America’s population—with a combined GDP of US$1trn, or about 76% of the total for the continent. Trade among the Mercosur nations grew to US$30bn in 2006 from US$4bn in 1990.

Yet the entity often has been mired in disputes over specific traded goods, a lack of harmonised economic policies and other bickering. Recent threats to Mercosur have included the re-emergence of Argentinian trade safeguards, namely compulsory import licences, against certain Brazilian imports. Also, last year both Paraguay and Uruguay voiced discontent with the group, even raising the possibility of withdrawal.

Each meeting of Mercosur leaders usually becomes an attempt to cement unity and inject the entity with new dynamism. Now, with Mr Chávez’s interventions, Mercosur is at a new crossroads: will it remain a trading bloc and vehicle to deepen economic linkages, or will it become an increasingly political organisation?

Brazil’s president, Luiz Inácio Lula da Silva, a moderate leftist who is pro-business and has favoured market-oriented solutions to Brazil’s economic problems—and was recently re-elected to a new term—would seem to be the leader best positioned to reinforce Mercosur’s original free-trade goals. He manages the region’s largest economy, and has earned praise for his prudent policies. It had been thought that Mr da Silva could moderate Mr Chávez’s influence from within the organisation. However, Mr da Silva, while voicing some differences with Mr Chávez’s views, has allowed the Venezuelan to steal the limelight. And Mr Chávez, emboldened by his own landslide re-election last December, seems unlikely to be tamed.

Energy interests

Mr da Silva’s patience with Mr Chávez may have much to do with Brasília’s plans to collaborate with Caracas on energy issues. The one area where Venezuela’s entry into Mercosur holds economic promise is in the area of regional energy integration. At the Rio summit, the two presidents signed agreements for their respective state oil petroleum companies to jointly build a refinery in Brazil, explore for oil in Venezuela’s Orinoco belt and launch a major feasibility study on the proposed construction of a huge natural-gas pipeline that would extend 3,100 miles from Venezuela to the north-eastern Brazilian city of Recife.

Nonetheless, Mercosur now must confront serious potential divisions at its centre, as Mr Chávez interjects his anti-imperialist rhetoric and makes radical new proposals. These include “decontaminating the contamination of neoliberal” economic policies, creation of a Mercosur development bank as an alternative to the World Bank, greater state controls of the region’s economies, among others.

This new situation is likely to further alienate some members, most notably Uruguay, which has been disenchanted with its secondary role in Mercosur and has been seeking closer trade relations with the US independently of the organisation. And some of the associate members, other than Bolivia, may be less interested in full membership in Mercosur now that Mr Chávez is trying to radicalise it.

Consequently, Mr Chávez’s ambitions to push Mercosur towards a more activist and anti-American stance are likely to be yet another burden on an already unstable entity, rather than a stimulus to the radical transformation the Venezuelan leader envisions.

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