SOUTH AMERICA: To Beijing with Love

By Marcela Valente Reprint | | Print |

BUENOS AIRES, Dec 6 2011 (IPS) - South America has managed to withstand the knock-on effects of recession in the EU and U.S. thanks to the protection offered by the soaring Asian demand for commodities. But many things could change in the medium term.

Pipelines that transport grains from the Suape port. In the background, Brazil's largest flour mill, owned by the Bunge agribusiness company. Credit: Mario Osava/IPS

There is a new centre of gravity in the world, comprised of emerging countries led by China, while the influence of the powers of the industrialised North is waning, experts in political science and the economy agreed at a recent seminar in Buenos Aires.

As a result of growing exports of food and mineral commodities to China, producers of those goods such as Argentina, Brazil, Chile, Paraguay, Peru and Uruguay have posted high levels of growth and achieved enviable fiscal stability, said participants at “Crisis in the developed world: opportunity for emerging countries” held Friday Nov. 2.

But that beneficial effect, which is projected to continue in 2012, may not last if the global crisis drags on and if South America does not move in the direction of greater industrialisation and higher spending on education, said experts from Argentina, Brazil, Ecuador, Peru and Uruguay, who were brought together by the private consultancy Abeceb.

Ecuadorean economist Leonardo Suárez of the University of Guayaquil pointed out that “global foreign exchange reserves stand at 10 trillion dollars, eight billion of which are in emerging countries.”

“My forecast is that China will rescue commodities, and that is good for Latin America,” Suárez told IPS. “But there is also a risk that the crisis will affect spending decisions, change expectations and trigger devaluations.”

Argentine political scientist Juan Gabriel Tokatlián at the private Torcuato Di Tella University said the international context in 2012 will be marked by “great turmoil and uncertainty,” and even higher levels of social polarisation.

U.S. influence has declined significantly in South America, he added. Against that backdrop, Argentina and Brazil should lead a “strategic alliance” based on hi-tech industries and other sectors, he recommended.

“Crises bring both opportunities and risks, because although the conditions are now favourable for Latin America, the developed countries are facing a slowdown and Asia is producing goods at lower and lower costs,” economist Bernardo Kosacoff, a professor at Torcuato Di Tella University and a former director of the Economic Commission for Latin America and the Caribbean (ECLAC) in Argentina, told IPS.

The crisis should drive “an agenda of competitiveness” in the region, he said in his speech.

Former Brazilian minister of finance and the environment Rubens Ricupero made the same point.

Ricupero, who was secretary general of the U.N. Conference on Trade and Development (UNCTAD) from 1995 to 2004, said Brazil is confronting the crisis by means of incentives for consumption, as it did in 2008 and 2009.

In 2012, these incentives will enable Brazil to continue growing and to keep up wages and the current situation of near full employment.

But there will be uncertainty in the medium term, the economist said. He cited a “worrisome sign” in Brazil: the loss of competitiveness of local industry in the face of imports from China.

Ricupero said the growing demand driven by incentives in the domestic market cannot be met by Brazilian industry, but is covered by products from China, “a phenomenon that cannot be fixed with old-fashioned protectionism.”

In Brazil some industrialists are becoming importers – the same thing that happened in Argentina during the 1990s, a period of deindustrialisation, he said, stressing that it is necessary to come up with “regional solutions” to this challenge.

Ricupero does not believe commodities will rescue the economies in the region in the medium term.

“It’s not a question of rejecting profits from agriculture or mining, but those activities do not have the capacity to diversify and generate jobs like industry has. The question is: how are we going to stand up to China five years from now?”

Value must be added to natural resources, interest rates must be lowered, appreciation and volatility of local currencies must be avoided, and the tax burden must be lightened, he recommended.

He was responding to the more optimistic scenario outlined by Suárez and Pedro Kuczynski, a former Peruvian prime minister and minister of economy and energy and mining.

Kuczynski stated flatly that “China will save Latin America,” noting the fact that nearly 20 percent of Peru’s exports are shipped to ports in the Asian giant.

“This demand will save South America, which is in the best position to supply China with food and minerals,” he said. “The myth that commodities are bad has burst. They can serve as a source of financing.”

He acknowledged, however, that it’s not a question of specialising in raw materials. “The economy must diversify, but in the meantime these goods generate hard currency that enabled many countries that are now industrialised to finance their own development,” he said.