The DEP Diplomacy, Strategy & Politics Review is a periodical on South American affairs published in Portuguese, Spanish and English. It comprises the Raúl Prebisch Project and is sponsored by the Brazilian Ministry of Foreign Relations (MRE/Funag – Alexandre de Gusmão Foundation/Ipri – International Relations Research Institute), Construtora Norberto Odebrecht S. A., Andrade Gutierrez S. A. and Embraer – Empresa Brasileira de Aeronáutica S. A. Editor Carlos Henrique Cardim Correspondence address: Revista DEP P.O. Box 2431 Brasilia, DF – Brasil CEP 70842-970 [email protected] www.funag.gov.br/dep International Cataloguing in Publication Data DEP: Diplomacy, Strategy & Politics / Raúl Prebisch Project no. 9 (January/March 2009) –. Brasília : Raúl Prebisch Project, 2009. Published in portuguese, spanish and english. ISSN 1808-0499 1. South America. 2. Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Guyana, Paraguay, Peru, Suriname, Uruguay, Venezuela. I. Raúl Prebisch Project. CDU 327(05) D E P DIPLOMACIA ESTRATÉGIA POLÍTICA Number 9 January / March 2009 Summary 5 Argentina-Brazil: a desirable, possible project? Roberto Lavagna 18 Keys for understanding Bolivia Pablo Solón 34 United States, South America, and Brazil: six topics for discussion José Luís Fiori 43 Changes in the sociopolitical matrix and development in Chile Manuel A. Garretón M. 69 Colombia: foreign policy, economy and the conflict Marta Lucía Ramírez 91 Ecuador, perspectives from an ex-President Rodrigo Borja 125 The great divergence: history or path dependence? Results from the Americas Steve De Castro 149 What has happened in Paraguay? Fernando Lugo 159 The Peruvian paradox: economic growth and political disapproval Julio Cotler 174 Political, economic and social introduction of Suriname C.A.F. Pigot 195 Uruguay and the learning divides Rodrigo Arocena 215 Energetic integration in Latin America and the Caribbean María A. Hernández-Barbarito 233 Fernando de Szyszlo Argentina-Brazil: a desirable, possible project? Roberto Lavagna* T he convergence of initiatives between Argentina and Brazil has made significant progress since the 1986 agreements. At that time, negative tendencies toward conflictive competition and the less visible but no less negative tendencies toward mutual indifference were brought to a halt, although they have not completely disappeared. The two attitudes and stances can be overcome only through a common political decision and strategic plans that converge to a point where strategy becomes a regional project. The achievement of the objectives of a regional project and thus the advance of the qualitative jump taken in 1986 faces two considerable obstacles that should be acknowledged: (i) t he tendency observed at least since the early eighties to adopt, in respect of the economy and foreign policy, conducts that did not coincide in time, and * Ex-Minister of Finance of the Argentine Republic. [email protected] Diplomacy, Strategy & politicS nº 9 – January/march 2009 5 Argentina-Brazil: a desirable, possible project? (ii) t he lack, in bilateral relations, of a more thorough discussion about the strategy for development and for the countries integration into the region and the world scene. This would be an impossible, useless task, as might be argued by many pragmatically-minded people, for whom laying roads or erecting power lines, or trade increase are much more effective and are worth more, both internally and at the regional level, than abstract discussions about the coordination of economic policy phases or the even more remote discussions about strategic visions. Those who argue thus adduce realities and trade or infrastructural gains in contrast to the tedium of bureaucratic discussions that fail to address specific interests and needs. I would both agree and disagree with such an argument. It is true that often in our region – why not say in the world as well – there are more discussions and speculations than actual work and decisions anchored in reality and in our people’s immediate needs. However, such pragmatism could not by itself alone take the place of a “vision” of whither we are headed, whither the world is going, and of how we can adapt to and effectively integrate into this world. The European Union example reminds us of the twofold need of action based on reflection: What would have happened to the European project if a more profound motivation had not underlain the conception of the European Coal and Steel Community encompassing two strategic sectors? In this case, the extra-economic motivation was the determination to lay the foundations for a European pax that would make impossible a repetition of confrontations such as World Wars I and II. On that occasion, the pursuit of enduring peace conditions was supported by the matrix of a project soon realized through political agreements pertaining to coal and steel, as well as to agriculture. It might not be too absurd to wonder if the current difficulties faced by the construction of the European Union are not due precisely to the loss of vision and profundity and to the fact that its geographic expansion may be happening at the price of greater superficiality, given that it is dictated by exclusively economic interests. Although necessary, pragmatism is in no way sufficient. It is thus worth analyzing the two obstacles that are hampering our integration process. 6 Diplomacy, Strategy & politicS nº 9 – January/march 2009 Roberto Lavagna I. Dissimilar behaviors It is possible to identify three periods in the last twenty-five years when Argentina’s and Brazil’s behaviors did not coincide in their reading of economic reality or international policy. The first occurrence took place at the time of the Mexican debt crisis in 1982. For a decade the major international banks had recycled the windfall resources the oil-producing countries had derived from the first shock of the high prices of oil and oil products in 1973. During this recycling period, Latin American countries took advantage of the supply of credit on markedly more flexible terms, thereby significantly increasing their foreign indebtedness. When the crisis broke out, it elicited two different interpretations: according to one, we were faced with a “liquidity” crisis, while the other pointed to a more serious crisis, namely, one of “solvency.” The central countries and the major international banks that had acted as lenders supported the liquidity thesis and their stance was to avoid outright haircuts and favor as an alternative a rescheduling scheme that implied some small reductions of the debt. The “solvency” theory, on the other hand, claimed that the debt was unsustainable and that more explicit, extensive haircuts were needed, under risk of mortgaging the growth of many countries. The choice of one or the other possibility did not depend on the decision of individual countries, as there was the risk of a domino effect. Had the debtor countries, or at least those of greater weight, been able to make prevail the idea of a solvency crisis, it might have been possible not only to reschedule but also to alleviate considerably their foreign debt. But this did not happen. While Funaro, the Brazilian Minister of Finance under the Sarney administration was inclined toward a concerted action based on the solvency theory, the Argentine government, during the Alfonsín- Sourrouille administration, preferred to subscribe to the liquidity theory and engage in a process of debt rescheduling instead of its effective reduction. The second occurrence took place in the nineties. Argentina, under the Menem-Cavallo administration, engaged in a generalized process of financial liberalization, privatizations, and drastic revaluation of the national currency, as well as adopting the rigid exchange regime of “convertibility,” which operated practically as a currency board. Under the Fernando Henrique Diplomacy, Strategy & politicS nº 9 – January/march 2009 7 Argentina-Brazil: a desirable, possible project? Cardoso-Malan administration during those years, Brazil maintained instead a more autonomous monetary, exchange, and economic policy in general. This disparity between economic policies, which widened over the years, especially as of 1995 and during the post-Tequila period, hindered the formulation of common strategies. Furthermore, Argentina wrapped up its economic policies in an international alignment sharply inclined toward the United States, under the doctrine known in Argentina as one of “carnal relations,” in the words of the Argentine foreign minister at the time. Argentina became fashionable on the international markets, was designated a NATO South-Atlantic partner, took part in the Gulf War, and acted as the Washington Consensus’s best student. This extremely close alignment was not shared by Brazil and although this did not give rise to open conflict, it did lead to mistrust and even unnecessary competition. The third occurrence has taken place in the current decade. The fall of “convertibility” coincided with Argentina’s loss of social and political confidence in the Washington Consensus’s orthodox policies. Argentina experienced then its worse economic and social crisis in a century, owing to the financial system’s failure to honor its obligations in 2001, under the De la Rúa-Cavallo administration, and to the subsequent, inevitable default on the debt, decreed with extreme levity by a transitory government that lasted only a few days (Rodríguez Saa administration). The renegotiation of the debt afterwards, with a substantial haircut, under the Duhalde-Lavagna and the Kirchner-Lavagna administrations, and the implementation of a new economic policy that deviated from the orthodox recommendations of the International Monetary Fund-IMF and the World Bank-WB occurred when Brazil opted for more conventional policies. Flexibility and the undervaluation of the Argentine peso coincided with a steady revaluation of the Brazilian currency. For a while, Argentina’s low interest rates coincided with high basic interest rates in Brazil under the Lula-Palocci/Mantega administration. Argentina spearheaded worldwide the debt reduction policy with the IMF and the World Bank. In addition, with the World Bank and the Inter-American Development Bank-IADB, Argentina decided to revert from the structural adjustment programs to loans for infrastructure projects. Brazil took longer to adjust to the idea of debt reduction; rather, the Brazilian representatives 8 Diplomacy, Strategy & politicS nº 9 – January/march 2009 Roberto Lavagna defended the maintenance of the structural adjustment programs, which in our view meant further, unacceptable meddling in internal policies. On this occasion, Argentina preserved its monetary policy’s autonomy, while Brazil adopted a more rigid inflation targets scheme. Today, the wave is in favor of Brazil and clearly to the detriment of Argentina. It would be impossible to discuss here the pertinence of one or the other of these positions. Our point is to stress that there was no synchrony in the choice of policies, which in addition were adopted without any consultation between the two partners. While one of them was flexible, less orthodox, and thus more independent from external factors, the other preferred to remain orthodox and attach top priority to the opinion of the markets. II. Development strategy and regional participation and integration The second obstacle is the lack of a development strategy that does not reflect only national decisions but has a regional scope. As in the preceding case, some may counter this claim. Examples of strategic development could be adduced, such as the nuclear industry, the pharmaceutical sector or the introduction of soybeans in Argentina. In Brazil, one cannot ignore the no less spectacular expansion of soybeans, the biofuels program, the development of the aeronautic industry, or the medium-term policies in the oil sector, which have converted Brazil from being a nearly net oil importer into one of the world reserves. Further examples could be cited in each country and seen as a reflection of national policies that have an indirect impact on the region. However, I do not think that this is the point. Obviously, each country has strategic plans. But “plans” is a plural word and do not mean the same as one global, integrated “plan.” Plans refer to specific sectors or areas and can be demonstrably successful and change important segments of national reality. But unless one thinks that the mere sum of plans makes a strategic plan from a global standpoint, partial successes can coexist with global insufficiency. This is also the position of the Brazilian government’s Minister for Strategic Affairs, who has recently stated that “the point is that there is no Diplomacy, Strategy & politicS nº 9 – January/march 2009 9 Argentina-Brazil: a desirable, possible project? debate about our respective national development strategies; we do not have an intellectual community, but we should.” Once again, the European example is appropriate. Other than open internal boundaries, especially trade boundaries, there are numerous scientific, technological, industrial development and services programs for the ensemble or for subgroups of countries. This, and not only a common external tariff, differentiates a free trade project from a common market and economic union project. Precisely for this reason, the current project looks more like a free trade zone in the Nafta style than the original project. Along these same lines, former Brazilian president Sarney, says: “But we made a mistake in respect of our integration process when, in July 1990, Brazil and Argentina signed the Buenos Aires Act and decided to change course and, instead of focusing on a common market, attached priority to the establishment of a free trade area and a customs union within five years, thereby assuming the risks implicit in this new approach.” From a global perspective, one could wonder and demonstrate whether this sum of plans has not changed our countries’ most serious internal problem, namely, the acute inequality in income distribution and of opportunities. Social fragmentation, the Latin American countries’ most salient evil, has not changed, and compensatory initiatives through social plans do no more than alleviate current needs without modifying future conditions. Argentina could hardly argue that it has a global vision, as within one decade it has moved from an economy based on the overvaluation of the national currency and on hyper-indebtedness to an economy based on an undervalued currency and the pursuit of unindebtedness as the essential objective. No strategic plan could justify these variations, which, in addition, have reflected on international relations. In the last ten years, we moved from an uncritical adherence to the policies of the central countries and multilateral organizations to a kind of “light leftism,” sharply opposed to the multilateral organizations. Brazil also could hardly explain why, notwithstanding the compliments received and the investments attracted, it has been the one among the “continental size” countries and the emerging powers (BRIC) that has grown the least. It is possible that such a great difference in respect of China, Russia, and India – a category Brazil aspires to join – is related to the fact that the 10 Diplomacy, Strategy & politicS nº 9 – January/march 2009