Mercosur: Crisis-Ridden and Pronounced Dead but Still Alive

South American countries are far too busy with their scandals and crises to be making progress with economic and political integration. And yet those crises could be exactly what gives Mercosur its second wind.

The news coming out of Brazil recently is reminiscent of a political thriller. A president deposed under questionable circumstances (Dilma Rousseff) is succeeded by her corrupt vice president (Michel Temer), who only escaped prison himself because of a pact with equally corrupt representatives. And a public that can no longer bear to hear the word “corruption” would, if necessary, be willing to elect a right-wing populist and proponent of dictatorship and torture (Jair Bolsonaro) if the country’s supreme court does not remove him from the running because of racist comments.

President Temer has clearly had trouble selling this confusion as “normal democracy” on the international stage, which is why he prefers to talk about a growth path that he says the country is now returning to after two years of recession. The crisis in Brazil’s government has been a gift to U.S.-based streaming media service Netflix, however, which quickly turned it into a compelling series (El mecanismo). If that series reignites the public’s interest in governance and the common good, more power to them, because if the upcoming October election becomes a referendum on corruption, it could offer the chance for political renewal in Brazil that could send a signal to the entire region.

Immense public dissatisfaction

Such a signal is urgently needed because democracy is losing traction across South America. The Bertelsmann Stiftung’s Regional Report in its current BTI Transformation Index finds that citizens are dissatisfied with their governments, writing that “the already weak communications channels between society and politicians continued to erode. This primarily concerns the party systems.” One reason for this is misguided economic policy, the report says. A rentier system established itself in South America’s socialist-leaning governments during the last decade, a system that redistributed the riches from the commodities boom. But in the process those governments failed to fundamentally address structural problems such as low productivity and high social inequality. That mistake is coming back to haunt them now as people who have emerged from poverty want to protect their new status and they hold high expectations of policymakers.

That is not what Mercosur was set up to do. The plan was to have market economies, free trade and democracy cross-pollinate and create stability and prosperity. This was the premise under which Mercosur was founded in 1991, using the European Union as a model. The founding members, Argentina, Brazil, Paraguay and Uruguay, cover 72 percent of South America’s land mass and have an internal market of over 260 million potential consumers. The alliance has limited significance today in spite of the fact that it still has a secretariat and a parliament in the Uruguayan capital of Montevideo. Very few South Americans would be able to name a representative in the Mercosur parliament off the top of their head. The world is still waiting for a functioning joint South American internal market, and a free trade agreement between the EU and Mercosur still does not exist 20 years after negotiations began.

Mercosur’s crises

Structural imbalances, ideological differences, economic crises and geostrategic ambitions have diluted the alliance instead. The relatively small countries of Paraguay and Uruguay always felt fleeced by Argentina and Brazil. For its part, Brazil always saw Mercosur as a springboard for his own ambition to become a major power, and it was never prepared to make concessions that were anything more than cosmetic. The most notable progress toward political integration was made when incumbent governments were ideologically aligned. Greater progress was made toward economic integration but that never met expectations because the product portfolios of the member countries were too similar and because Brazil and Argentina in particular maintained their protectionist trade policies, which repeatedly led to crises.

Economic crises often lead to political crises, and this was reconfirmed by Argentina’s debt crisis in 2002 and the ensuing decade of left-wing populism under married couple Nestor and Cristina Kirchner, as well as by the current crisis in Brazil. By contrast, economic and political progress have not always gone hand-in-hand. Paraguay, for example, has long been the economic star in South America, averaging 5 percent annual growth over the past decade. But poverty remains widespread, affecting 26 percent of the population according to official statistics. Paraguay’s strong growth is primarily due to three factors. Soy, most of which is exported to the EU, generates nearly USD 1.6 billion in foreign currency, and beef exports generate an additional USD 1.1 billion. Yet the second-strongest export product, illegal drugs, does not appear in official statistics. Paraguay’s anti-drug agency SENAD estimates that the country generates USD 1.5 billion annually from cocaine and marijuana. Political predicaments such as coups, political murders and government crises have been a regular feature in Paraguay since the mid-1990s.

A second wind?

Despite all its problems, Mercosur has still brought some benefits. It has survived every crisis to this day – in contrast to other alliances such as the Andean Community and Unasur. And it was the first regional alliance to put palpable pressure on Venezuela when that country descended into authoritarianism. In April 2017 the Mercosur members suspended Venezuela for violating the alliance’s democracy clause. In a regional comparison, the Bertelsmann Stiftung’s BTI Transformation Index rates the Mercosur countries of Brazil, Argentina, Paraguay and Uruguay better as a group than the Andean countries and Central America. In addition, the ideological convergence of liberal governments on the horizon following the elections in Paraguay and Brazil later this year definitely has the potential to give the alliance a second wind.

Sandra Weiss is a political scientist and former diplomat. She has been reporting from Latin America as a correspondent for German and international media since 1998. She currently lives in Mexico.

Translation by Douglas Fox