It wasn’t supposed to be like this
April 24, 2012
Initially, South America’s near continent-wide economic expansion meant great advantages for the rest of the Western world. In the opening decade of the century, with Argentina largely at the mercy of the IMF, South America was led mostly by governments that the West could do business with. For better or worse for the people of South America, this meant that the West had stronger trading partners, a decline in drug related violence and yet another example of liberal, free-market economics becoming the default setting for any nation that wished to exist within the international community.
This was also a time when we knew how to differentiate the good guys from the bad. Across the border from Colombia, and 90 miles off the coast of Florida, lay Latin America’s answer to the Axis of Evil. With the menacing prospect of further international terrorism following September 11th, US President George W Bush was able to maintain a healthy distance between Pro and Anti US Latin America. Nowhere was this more evident than between neighbours Colombia and Venezuela. The Bush administration was able to manipulate this relationship by placing US military bases on Colombian soil which were, in the US’s own words, designed as a launch pad for military operations against Anti US Latin American Governments. South American politics seemed to fit so neatly into the US world-view.
Fast forward to the present day and something rather unexpected seems to have taken place; South American governments are increasingly beginning to think for themselves. Last month’s Organisation of American States (OAS) Summit was the biggest indication yet of the diverging paths taken by South and North America. At the discussion table were measures such as the legalisation of the drugs trade, British claims over ‘Las Malvinas’ and Cuba’s absence from the summit talks. With better relations between Colombia and Venezuela and an increasing desire to settle internal matters through UNASUR rather than the OAS, South America is speaking with its own voice and making its own decisions. The most significant development of South American integration is surely the growing contribution of the Continent’s left-wing bloc.
South American Integration
During the Bush Administration it was clear that the OAS took the majority of decisions affecting the American region. The Organisation was largely designed to satisfy North American goals such as the fights against terrorism and the illegal drugs trade. Cuba was suspended from talks between 1962-2009 and there appears to be no pressing need to reinstate them.
Since then, both the Union of South American Nations (UNASUR) and the Bolivarian Alliance for the Americas (ALBA) have gained a more influential voice. ALBA stands for a rejection of trade liberalization and free trade agreements, preferring to project a vision of mutual economic aid transfers, bartering and social welfare. UNASUR is becoming ever more effective at curbing the influence of the US in South America by resolving the Colombian Venezuelan conflict and agreeing to prohibit US military bases in Colombia being used for military purposes outside of Colombian soil.
In addition to this, Hugo Chavez’s vision of a South America free from the oversight of the International Monetary Fund (IMF) was eventually realised in 2006. In an agreement between himself and then Argentine President Nestor Kirchner, the ‘Bank of the South’ was launched with the ultimate goal of becoming an alternative money lender to the IMF. The bank was created to encourage social projects and capital investment across the continent.
Chavez spoke of the evils of the IMF, imposing unrelated market reforms on countries in need of a bail out. The bank would lend to any nation involved in the construction of approved projects without the usual conditions that come with loans, such as deregulation. After Brazil signed up in 2007, the bank now represents all 12 South American nations including the Pro US Colombian government. The region has experienced a fall in dependency upon the IMF since 2005, with Brazil and Argentina pledging never to borrow from the IMF again.
Argentina will not cry for us
It should not come as a big surprise, when one remembers that because of punishing interest rates and lingering legal battles following its 2001 sovereign default, that Argentina has become effectively locked out of the debt market and is now unable to borrow. Add to this the loss of the nation’s trade and fiscal surpluses, once the boast of Argentina’s economy, and it is clear that something was about to give. Fears of growing nationalism in South America seem to have been given further weight in the form of President Cristina Fernandez’s decision to nationalise 51% of YPF, the former state oil firm.
After nationalising pension funds and raiding the state’s coffers to pay for its debts, Argentina is now flirting with international condemnation after it decided to target the YPF shares owned by Spain’s energy giant Repsol. The move is seen as a further indication that Fernandez is exploiting Argentine national pride in order to maintain her approval ratings. YPF, like Las Malvinas (the Falkland Islands), is a symbol of national pride to many in Argentina and the President’s rhetoric towards both has sent shivers down the spines of the rest of the Western world. Hillary Clinton, along with Spanish Prime Minister Mariano Rajoy, has described the move as ‘unjustifiable.’ Repsol has demanded $10.5 billion as compensation, with Spain demanding trade sanctions against the Argentine economy.
In the early years of the 21st Century, it may have been easier to imagine such a move being met with credible reprisals. Today, Argentina has a much stronger position from which to negotiate. Ms Fernandez may even attempt to consummate a deal between YPF and China’s Sinopec, which has already invested heavily in Brazilian assets, something Repsol had recently failed to do. With a growth in South American influence, the protection of the Bank of the South and the distraction of a possible bail out facing Spain, it is difficult to envision any meaningful punishment being administered to Fernandez in the short term.
The YPF affair can be seen as a further example of South American national pride taking precedence over the need to satisfy the rest of the Western powers. The rise of nationalism in the South appears to have become an almost mirror image of the decline in political stability across Europe and the US. With centre-left and centre-right governments in Europe playing political pass-the-parcel while their economies continue to stagnate, coupled with the continuing gridlock in Washington, the people of South America must be asking themselves why their recent economic success should not benefit anyone other than themselves. For the first time in a long while, South America is mapping out a coherent vision of political, economic and social integration. With the Euro Zone crisis refusing to recede, and the US congress failing to work together, one thing is becoming increasingly clear; like it or not, South America is slowly becoming the envy of the Western world.