‘Brazil is becoming Argentina, Argentina is becoming Venezuela, and Venezuela is becoming Zimbabwe’

The Wall Street Journal clearly counts among its staff a number of reporters who follow LatAmEye! The WSJ has caught up, with an article discussing the ever more clearly defined differences between our two favourite regional blocs; Mercosur and the Pacific Alliance.

David Luhnow, writing in the WSJ states that, ‘There are two Latin Americas right now. The first is a bloc of countries—including Brazil, Argentina and Venezuela—that faces the Atlantic Ocean, mistrusts globalization and gives the state a large role in the economy. The second—made up of countries that face the Pacific such as Mexico, Peru, Chile and Colombia—embraces free trade and free markets.’

This article rightly concludes that due to the geographical, historical and cultural similarities between the LatAm nations this divide into distinctive blocs can be seen as a controlled experiment in economics. Which side will triumph? All of the statistics point to the Pacific Alliance as being the place to do business with higher growth economies and a more business friendly culture. Even the LatAm BRIC representative Brazil is flagging.

The article continues, stating that, ‘The diverging trend lines between the two Latin Americas may last long past 2014. When China’s economic growth was at its peak, the rising giant snapped up Venezuelan oil, Argentine soy, Chilean copper and Brazilian iron ore. But as China’s economy has slowed, commodity prices have followed suit, hitting the Atlantic economies hardest.’

This slump in commodity prices is important but doesn’t give us the full picture. Stifling bureaucracy, protectionist trade barriers, widespread corruption, lack of investment in infrastructure and the limited scope of economic reforms have been piling up like wood on a bonfire for a number of years. Inflation and weak government finances have provided the starter fluid and it maybe that lower demand for commodities will be the spark.  

The divide has been developing for years. As Luhnow reports, ‘ A key moment in creating the two Latin Americas came in 2005, when Brazil, Argentina and Venezuela (then led by Mr. Chávez) lined up to kill the proposed Free Trade Area of the Americas—a free-trade zone stretching from Alaska to Patagonia and promoted by President George W. Bush. Troubled by the FTAA’s demise, the Pacific Alliance set out to create its own free-trade area, eliminating tariffs on 90% of goods and setting a timetable to eliminate the rest.’

Differences in relations with Washington also serve to highlight the divide. ‘While the Atlantic bloc often views the U.S. with suspicion or outright hostility, the Pacific countries tend to have closer ties to Washington. “We set out to create the Pacific Alliance because we wanted to set ourselves apart from the populists,” said Pedro Pablo Kuczynski, a former Peruvian finance minister.’

Only time will tell who’s right…

Read the full article: http://m.us.wsj.com/articles/SB10001424052702303370904579296352951436072?mobile=y

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