: SPECIAL REPORT Time for change at Mercosur Sao Paulo / Buenos Aires, December 2015 BARCELONA BOGOTA BUENOS AIRES LIMA LISBON MADRID MEXICO CITY MIAMI PANAMA CITY QUITO RIO J SAO PAULO SANTIAGO STO DOMINGO TIME FOR CHANGE AT MERCOSUR 1. INTRODUCTION Recovery, redesign, restoration, a possible new format. It seems 1. INTRODUCTION as though the tides of change are finally crashing upon the 2. STARTING WITH THE worn out Mercosur. Argentinian Chancellor Susana Malcorra INFRASTRUCTURE raised the alarm when she declared “Our most urgent priority is Mercosur,” while expanding her horizons by adding “by not AUTHORS thinking of the options in the Pacific we would be giving up on a good number of opportunities.” The change of command at Casa Rosada brings a breath of fresh air to a block that was losing economic ground and turning into a scene of political discussion. Or, as Malcorra declared at a press conference at Planalto Palace, in Brasilia, it is time to replace the “discursive” integration of the past few years with an “operative” one, a path that had been clearly abandoned. President Macri also spoke about “convergence” between the South American union and the Pacific Alliance, a seductive idea that begs the attention of entrepreneurs in the countries that make up Mercosur, but divides the governments of the block, to the point of losing the initial momentum in the negotiations in order to establish a new agreement. President Mauricio Macri and his foreign policy advisors made very clear that reconstructing ties with Latin America will be at the core of their diplomatic and commercial efforts. Argentina´s priority to the region in recent years was merely rhetoric, while in reality commercial barriers were being imposed. All this, to the ends of protecting its own depleted international reserves in the middle of a capitalistic feud that drove the country to impose a rigorous exchange control. “We believe in unity and cooperation between Latin America and the world, in fortifying democracy as the sole solution to resolving problems between diverse societies. It is pivotal to look beyond the times of confrontation”, said Macri in his inaugural speech, observed by the presidents of Chile, Uruguay, Brazil, Bolivia, Colombia, Ecuador and Paraguay, among others in the region. 2 TIME FOR CHANGE AT MERCOSUR The focal point of Macri’s Macri made clear he strategy is its relationship with would take the lead in the Brazil, including its political discussions: he is an advocate and corporate system. The for an open Mercosur and infamous DJAI (Declaración is urged to establish close Jurada Anticipada de ties with the European Importación), which in recent Union -through a Free Trade years drove the players in Agreement- and the Pacific “The focal point of foreign trade mad, is going Alliance, all while working in to be downgraded and before collaboration with Brazil so Macri’s strategy is its long will become a thing as to transform the exporting relationship with Brazil” of the past, once Argentina sector in the engine of the normalizes its fragile financial national economy. It is situation - announced the new necessary to take into account president. Tax cuts are already the disparities in the exchange being implemented, giving rate, which once is adjusted economic agents a signal of will benefit products that had hope that the revitalization of seen their competitiveness foreign trade is real. decline, such as fruit, nuts, wine, dairy, meat and In order to bring this agricultural machinery. discussion to life, it is fundamental for Argentina to “Brazil has been Argentina’s open a transparent dialogue strategic business partner with Brazil, which Argentina throughout history, because has been postponing since of possibilities and exchanges. 2012 when former Minister We are countries that of Economy Axel Kicillof complement each other and strengthened commercial we must interact with the rest barriers -including the of the world in a joint manner, exchange with members just as Uruguay and Paraguay of the Customs Union- and do”, said Macri before taking blocked all channels of office. negotiation with Brazilian authorities. Macri’s plans for a new Mercosur sound like music to Since then, Argentina has the ears of the most liberal fallen to third place, behind and pragmatic ministers in China and the U.S., as export Dilma Rousseff´s government, destination from its biggest such as Joaquim Levy, commercial partner. Numerous Minister of Finance, Kátia investments, including those Abreu, Minister of Agriculture, from Brazil, which looked to Armando Monteiro, Minister transform Argentina into an of Industry, and Chancellor exporting powerhouse were Mauro Vieira, who considers paralyzed, undermined by that, given the political and extravagant economic and institutional crisis the country business policies. is going through, the real 3 TIME FOR CHANGE AT MERCOSUR task at hand for Brazilian the whole scenario could diplomacy is mending its change if they choose to economic policy and restoring embrace economic liberalism. the tax balance. The premises This new pattern becomes of the new Argentinian leader favorable for Brazil,” said Levy. also swayed the Brazilian business community, as Monteiro, Minister of became clear at the reception Development, Industry, and held at FIESP´s (Federação de Trade, who in 2014 was able Industrias do Estado de São to transform Brazil´s trade Paulo) headquarters before he balance deficit into a surplus took office. that could reach close to 15 billion dollars this year, also Levy welcomed the change considered Macri’s arrival as of pace in Argentina and good news for the relationship emphasized it will benefit his between Brazil and Argentina. country. “Argentina’s dynamics could change. It is going to "All the signs are positive. take a lot of work to fix many Macri believes in Brazil as things. But obviously, because a strategic partner and in of the country’s potential, Mercosur being more open to along with its human capital, other international networks. Figure 1. Commercial Relations Argentina - Brazil ARGENTINIAN COMPANIES IN BRAZIL They represent 8,400 million dollars in productive investments and 44,000 direct jobs created. BRAZILIAN COMPANIES IN ARGENTINA They represent 17,600 million dollars in investments and 51,000 direct jobs. ARGENTINA STOPS BRAZILIAN EXPORTS It maintains its position as the first Latin American market, although it loses some place. Brazilian sales to Argentina fell 42.4% in the period January-October this year in comparison to the same period in 2011. INVESTMENTS Chile overcame Argentina as the major destination for the Brazilian investment flow in 2014. Chile received 41.6% of the Brazilian capital, whereas Argentina received just 25.5%. In the biennium 2010-11 the proportion was 46.5% to Argentina and 27.4% to Chile. REASONS TO SUCH HALT Macroeconomic instability, external capital restrictive policies, expropriations and nationalizations. 4 TIME FOR CHANGE AT MERCOSUR For us, this is music to our 2. STARTING WITH THE ears," Monteiro said on a recent INFRASTRUCTURE trip to Chile to promote trade between Brasilia and Santiago. Of all the promises made by the new Argentine president Everton Vargas, Ambassador Mauricio Macri during his of Brazil in Argentina, electoral campaign, the most recently evoked that the two significant one has to do countries are connected by with infrastructure renewal, “All the signs are bilateral trade that has already which he described as "the positive. Macri approached 40 billion dollars, largest infrastructure plan in although it felt to about 30 Argentine´s history”. believes in Brazil as a billion this year; 8.4 billion strategic partner” dollars in capital investment; Designed to be a Buenos 44,000 direct jobs generated Aires version of the Growth by Argentine companies in Acceleration Program Brazil; and17.6 billion dollars in (Programa de Aceleración del investment and 51,000 direct Crecimiento - PAC) launched jobs generated by Brazilian by president Luiz Inácio companies in Argentina. Lula da Silva, the plan will be supervised by economist "Building, maintaining and Guillermo Dietrich, Minister strengthening ties between of Transport. He has organized our countries is a process four teams to develop the that requires political will, project, which will count on firm decision making and the participation of Brazilian long-term vision. If, as the companies. Macri’s Growth saying goes, "all politics are Acceleration Program (PAC) local," democracy is a force will aim at renovating that crosses borders and helps the damaged Argentinian societies keep control of their roads, dredging waterways, destiny. Likewise, integration facilitating the access of is both a consolidated trucks to the strategic port of achievement and a dynamic Rosario, which hosts the largest process at the same time: there soya processing center, and is no final conclusion, only upgrading the airports, some of new phases to be assessed," which are collapsed. Vargas wrote. He claimed that the new phase in the process “Waterways, trains, airports, of regional integration will energy… There are many areas begin in the first semester to invest in,” Macri said. “There of 2016. Mercosur, and is always credit for such especially the most dynamic infrastructures.” According to sectors within Brazil´s Macri, “The Rosario hub needs and Argentina´s business to be addressed. The time communities, will benefit from wasted because of blocked these changes. trucks are paid by the producer. 5 TIME FOR CHANGE AT MERCOSUR There is no entry to the port. “President Dilma told me we That is going to change.” have plenty of funds approved by the BNDES, a large Brazilian Macri has already talked to development bank, to invest in the President of the Inter- burying the Sarmiento railway American Development Bank and in power lines”, Macri said. “The BNDES has (BID), Luis Alberto Moreno, allocated 1.5 billion and to the head of the Andean The BNDES has allocated 1.5 dollars towards these Development Corporation billion dollars towards these (CAF), Enrique García, on burying works, which will be burying works” financing.