Mercosur has been in crisis for at least 20 years, says Ricupero – 11/25/2023 – Market

“I have no socialist partners”, “the relationship with Mercosur is a hindrance” and “the bloc is not going anywhere”. The threats by the elected president of Argentina, Javier Milei, to cool relations with President Luiz Inácio Lula da Silva (PT), whom he has previously called a communist, put the future of Mercosur in question.

The bloc, which also includes Uruguay and Paraguay as active partners, and which has a pending agreement with the European Union, may go through a delicate moment following the inauguration of the ultra-liberal Argentine.

For former Finance Minister Rubens Ricupero, the bloc had already been showing signs of crisis for at least two decades and has not yet disappeared due to “inertia”.

“In the first years, he had fantastic strength, but he never managed to diversify the services and technology area, this crisis is deep and perhaps there is no solution”, he says, in an interview with Sheet.

For the former diplomat, despite the uncertainties caused by Milei’s victory in the neighboring country and his likely difficult relationship with Brazil, the anarcho-capitalist must face political difficulties if he tries to execute his campaign plans, and his alliance with former president Mauricio Macri must limit its governing platform.



Regardless of Milei’s criticism, does Mercosur need to be reformed?
Mercosur has been in a deep crisis for at least 20 years, which worsened especially after the Argentine collapse of 2001. [a crise do ‘corralito’]. All successive governments in Brazil announce their intention to revitalize the bloc and make it enter new areas, but Mercosur has not disappeared yet because it has the staying power of inertia.

I was Minister of Finance in 1994, when this customs union formula was clearly chosen, it is something very old and it survives because it created powerful interests.

In the first years, it had fantastic strength, but it never managed to diversify the services and technology area, this crisis is deep and perhaps there is no solution.

Both the concepts of Mercosur and other integration agreements in South America and Latin America date back to the early 1960s, a time when expanding the size of the local market through integration would be an instrument for industrialization.

This was also the case at the beginning of the European Common Market. Today, in the vast majority of Latin countries, the industry has lost its dynamism.

Have we left industrialization aside?
I was in charge of trade at the Brazilian Embassy in Argentina in the 1960s. At that time we were beginning to integrate manufactured products and there were a series of sectoral agreements, companies had factories in Brazil, Argentina, Chile, Mexico and agreed among themselves .

When I arrived in Buenos Aires, Brazil sold pine wood, coffee, bananas. That’s when we started selling machines.

But over time, Latin America lost this industrialization horizon, but the agreements stuck to this idea, we are basically exporters of commodities and it is obvious that Brazil and Argentina are not going to integrate by selling soybeans and corn to each other.

What can we expect for Mercosur in the coming years, with presidents as different as Lula and Milei leading the main partners?
I see neither the possibility of a revitalization nor a collapse.

This year alone, Argentina has already exported more than 120 thousand vehicles to Brazil, generally SUVs, all governed by managed trade, with quotas. The sale of cars and auto parts has a specific agreement that is renewed periodically and sets quotas, it is the opposite of free trade.

If Milei is indeed someone with neoliberal thinking and has the true intention of releasing exchanges, he will have to give up on this.

We just no longer depend on importing cars from China because of tariffs, not competitiveness. What’s left of Argentine industry is in these areas, Ford left Brazil, but is present there.

If he decides to pursue a free trade policy, he will put the automobile industry’s agreement into question. Argentine industry is even more protectionist, Argentina is Fiesp [Federação das Indústrias do Estado de São Paulo] cubed. Will he be able to face this?

If he has the intention, will he be able to do this?
We cannot forget that he has a minority position in Congress. He was elected largely due to the population’s desire for change, which could no longer bear the economic situation and was willing to pay any price, but this was unable to make him win in the first round.

Milei won with the support of [ex-presidente] Mauricio Macri and [candidata do macrismo] Patricia Bullrich.

He has said he would eliminate all subsidies. Macri said the same, but failed to do so when he was president.

Argentines’ bills, like their gas bills, have a huge subsidy. I’m not even going into the proposals for dollarization or ending the Central Bank, I see difficulties for it itself in these concrete issues, which affect the interests of the population.

Is the agreement between Mercosur and the European Union in danger of getting stuck?
Milei declared several times that he was against it, but the agreement only exists today because of Macri, he hoped that this would be a great asset for his re-election, which did not happen. Will Macri want to give up?

The future of the agreement depends more on its complexity, the difficulties are gigantic and there are still many obstacles in Europe, including those placed by the Lula government.

The perspective for the relationship between Brazil and Argentina is one of managing the loss, the relationship will go from bad to worse, there are no good prospects in terms of politics, even if it is managed diplomatically.

So far, Lula has behaved with more restraint than in the past, as in the election of Evo Morales [ex-presidente da Bolívia] when he got to the stage. But no one should deceive themselves, both on one side and on the other, the signs are negative.

We saw in Brazil a worsening of relations with China during the last government. Can we expect the same with Argentina?
Bolsonaro multiplied negative and aggressive statements about China, he was a kind of copy of [do ex-presidente dos EUA Donald] Trump when talking about the origin of the Covid-19 virus. But, from a certain point onwards, Bolsonaro himself backed down, at the time of the implementation of 5G.

Milei’s dilemma about both Brazil and China is that his country depends on these partners, even if the new president doesn’t like it.

Argentina received credits from China and there were times when its ability to continue trading depended on Chinese aid.

Mr. it was the Minister of Finance who launched the real. Does Argentina, with inflation in 12 months above 140%, need a ‘Real Plan’?
When I was a minister, [o presidente Carlos] Menem and the [ministro da Economia Domingo] Cavallo commanded Argentina and it seemed like everything was going well.

Cavallo had managed to eliminate inflation overnight, with convertibility, in which one peso was worth one dollar. It was an idea a little similar to Milei’s, and at the time many analysts thought that the Real Plan was too gradual and that it would take time to produce effects, while the Argentine plan produced immediate effects.

Cavallo told me personally that Brazil should follow their path. We are going to complete 30 years with the same currency, which is not perfect, but back in Argentina the plan ended in tears.

Argentines have a certain tendency towards radicalism while here we tend towards gradualism. Both approaches have flaws, but they have what they call ‘tremendism’, they want to do everything from one moment to the next, this generally doesn’t work.

The real team’s diagnosis was that Brazilian inflation was unorthodox and needed to de-index the economy, something that has not yet been fully resolved.

Argentina’s economy has many flaws, but I have the impression that the level of indexation there is lower. They would need a team with an original idea, who would adopt measures according to local needs.

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Rubens Ricupero, 86
He was Minister of Finance, the Environment and the Legal Amazon and ambassador to the United States and Italy. He has a bachelor’s degree in Legal and Social Sciences and is a career diplomat, having worked in different countries, such as Argentina, Switzerland and Ecuador.