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Trade agreements and Colombian

Regional integration and open markets are at the top of the agenda for South America’s presidents as protests against economic policies spread from country to country.

At the second meeting of South American presidents, held in Guayaquil, Ecuador, the chief executives called for closer ties between the Southern Common Market (MERCOSUR) and the Andean Community in an effort to level the playing field before the proposed Free Trade Area of the Americas (FTAA) goes into effect in 2005 (LP, April 30, 2001).

The meeting coincided with a decision by the US Congress to give US President George W. Bush "fast track" authority to negotiate the FTAA without subjecting every item to congressional approval.

The presidents meeting in Guayaquil expressed doubts about the benefits of the FTAA for their countries.

In his opening remarks, Ecuadoran President Gustavo Noboa warned that Latin America continues to be marked by its "extreme vulnerability," exacerbated by "policies of protectionism and subsidies in industrialized countries," and added that "globalized trade has benefited some, but not others."

Brazil’s President Fernando Henrique Cardoso said he does not believe conditions exist for finalizing the FTAA, especially when the United States has been increasing protectionism and farm subsidies. US supports for the steel industry and farmers in recent months have rankled southern trading partners, especially Brazil, which has South America’s largest economy.

"We’ll see what happens with the FTAA. So far, the signs from the most important governments in the north have not been signs of opening, but signs of restriction," Cardoso said.

Cardoso, Noboa and other leaders urged closer ties between MERCOSUR and the Andean Community as a way of creating a South American bloc that would be better able to negotiate trade issues with the United States.

"From Washington’s standpoint, there’s great interest in the FTAA and great interest, especially, in not having a South American bloc form," Peruvian economist Oscar Ugarteche said.

The FTAA, which would remove tariff barriers among the hemisphere’s countries, would create "an integrated market of asymmetrical economies ... that will probably begin with a bang and end with a whimper," he added.

The pact would not eliminate non-tariff barriers, such as price supports and quotas, that the United States currently uses to protect industries. Many South American countries were forced to drop non-tariff barriers as a condition of economic adjustment packages in the 1980s and 1990s.

Privatization, another pillar of the policy of multilateral lenders (LP, June 12, 1997), has also become a highly controversial issue. There was much talk inside and outside the presidents’ meetings about how countries are responding to growing public opposition to privatization.

Imports Exports

Andean Community






























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* Associate members, ** Through August, Source: ALADI

In many cases, privatization has simply turned state-run monopolies into private monopolies through processes in which citizens had no participation and no oversight mechanisms were established.

Corruption has also been a serious problem in privatization. According to Peruvian Congressman Javier Diez Canseco, 228 state-run companies were privatized in that country between 1992 and 2000 for a total of US$9.2 billion, but only $3.3 billion entered the treasury.

In many instances, utility rates have skyrocketed after companies have been privatized. According to a 2000 World Bank report, while one-third of the population in the region’s 12 largest countries earns $2 a day or less, electricity and water bills for a family in a poor neighborhood could total as much as $40 a month. In Cochabamba, Bolivia, protests over increased rates forced the government to backpedal on the privatization of the water company (LP, April 24, 2000).

Meanwhile, some companies have reaped huge profits. In 2001, the Spanish communications giant Telefónica reported profits of 43.1 percent on its Latin American operations, with 11 percent of that in Argentina, where the company is being investigated for allegedly paying $6 million in bribes to judges to approve higher rates.

Growing public anger over privatization is increasing. Recent protests in Peru and Paraguay forced the governments to backtrack on planned privatizations (LP, July 1, 2002).

While lenders pushed privatization in the 1990s as a way to cut down on bureaucracy and revitalize Latin American economies, the revenue generally was used for ordinary government spending, rather than being invested to improve industrial infrastructure.

"What the region did was sell off its patrimony to finance its running expenses for a decade, which produced what looked like a good rate of growth," Ugarteche said. "No one noticed that the state was simply putting money into the economy through the back door."

As a result, most of the region’s countries are poorly positioned to take advantage of more open markets. Only Brazil has a solid industrial base, making it the leader in efforts at regional integration.

And despite evident macroeconomic growth in the region in the 1980s and 1990s, the number of people living in poverty increased by at least 4 million during the 1990s (LP, Sept. 27, 1999).

The UN Development Program’s Human Development Index shows that almost all Latin American countries have lost ground. The index uses social indicators such as life expectancy, adult literacy rates, school attendance and per-capita income, to rank 173 countries worldwide.

In the most recent report, released July 24, which is based on data from 2000, only Chile and the Bahamas moved up on the scale, while Barbados maintained its ranking. All other countries in the region dropped down on the scale, with Haiti falling from 134th to 146th place.

Faced with protests and economies that are failing to pull their people out of poverty, at least three presidents — Peru’s Alejandro Toledo, Argentina’s Eduardo Duhalde and Bolivia’s new chief executive, Gonzalo Sánchez de Lozada — have announced that their governments would put a "human face" on free-market economics. The details of their plans, however, are sketchy.

"Exports are increasing but the economy isn’t growing. Maybe what they’re calling a ‘human face’ is the Keynesian policy of increasing public spending on activities like construction, which create many jobs, as a first step toward placing more importance on the internal market than the external market," Ugarteche said.

The danger, however, is that after several years of this policy, "imports increase, but exports don’t improve because the prices of raw materials are dropping," he added.

Real reform would require "transforming exports of raw materials into value-added exports. That’s the only possible solution, but it requires either national or international businesses" prepared to do it, Ugarteche said.

Several presidents at the Guayaquil summit called for increased social assistance, although "trade, not aid" was also a recurring theme. Toledo urged the establishment of a "financial solidarity fund," a sort of Marshall Plan for Latin America, although other delegates commented that the region could not finance such a scheme.

Venezuelan President Hugo Chávez suggested the creation of an "international humanitarian fund" to finance development projects, with amounts based on a percentage of the countries’ external debts. He also urged the formation of a regional corporation of state-run petroleum companies to compete with multinational companies.

The presidents expressed solidarity with both Argentina, which has been wracked by an economic crisis since last year (LP, July 1, 2002), and Colombia, which is suffering an escalation of violence (LP, July 15, 2002).

Noboa said the presidents were determined not to become involved in the Colombian conflict.

"We’re not going to get involved in the Colombian issue, nor will there be a continental [military] force," Noboa said.

The newspaper Jornal do Brasil reported in mid-July that the US was pushing for the creation of such a force, and there were rumors, denied by officials, that Chile had offered to send troops.

The presidents did commit themselves to fighting drugs, but called on countries where drugs are consumed to play a greater role, as well as to help ensure that campesinos who switch from drug crops to other products find a market for their goods. Despite millions of dollars in US aid for crop substitution, the area under cultivation with drug crops in the Andes has increased in the past few years (LP, March 11, 2002).

"If they want countries where there are drug crops to have alternative crops, that’s a great idea," Noboa said, "but if they’re going to ask that drug crops not be grown, industrialized countries will have to buy those alternative crops from us." — LP, LADB


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