Latin America’s Moment

This afternoon, I joined Randal C. Archibold, Arturo Sarukhan, and José W. Fernández to speak about the domestic politics of Mexico, the impact of corruption, and Mexico’s bilateral strategy with the United States following disagreements over immigration, border walls, and the North American Free Trade Agreement. You can watch the conversation here.

The Venezuelan constitutional chamber’s decision last week to dissolve the National Assembly has made it abundantly clear that Maduro’s Venezuela is an authoritarian regime. The judiciary is at the beck and call of chavista forces, the military is corrupt and co-opted, and despite a last-minute reversal of the court’s decision, the continued dilution of the Assembly’s powers means that there are effectively no independent institutions left with the power to check the regime. Venezuela, meanwhile, is confronting a humanitarian catastrophe. The regime has run up against the limits of its economic policy: foreign currency is too scarce to cover both debt obligations and desperately needed imports. Three quarters of Venezuelans have lost weight under the “Maduro diet”; more than two-thirds of basic goods are scarce. The regime seems willing to play out the clock, at grotesque human cost, guided by one core strategy: waiting for global oil prices to recover. But the hole is now so deep that a modest increase in oil prices— of the sort predicted for 2017— may be insufficient: debt payments due in 2017 outstrip foreign currency reserves. Dictatorships sometimes crumble under the weight of their own contradictions, and this could yet be the case for Chavismo, given the depth of the crisis. Indeed, the uncertainty generated by the court’s action last week may be a sign of fissures within the regime. But as John Polga-Hecimovich and I noted last year, the Maduro regime has a clear strategy for repressing domestic opposition. Leaders who have mobilized against the regime are in jail. The military is fully in control of food supply and appears united against any regime change that might expose leading officers to prosecution for corruption or human rights abuses. The opposition has been fractured by the regime’s delay tactics, including the simulacrum of negotiations over the past year. Venezuelans are exhausted by the daily search for sustenance which, alongside regime repression, saps their ability to protest. Although Maduro walked back last week’s court decision, he retained the power to negotiate oil deals without congressional approval, a tool which may prove very important. China or Russia could yet help Venezuela out of its hole. But China does not seem eager to play a geopolitical role and it has little to gain from saving a crisis-ridden regime in the Western Hemisphere from seemingly inevitable collapse. Russia, on the other hand, seems to be doing what it can to help Maduro through his hard spell: it is reported to be negotiating loans and further investments by Rosneft that might help the regime through a heavy bout of April debt payments. The region has been slow to respond, but is at last finding its voice. Several countries withdrew their ambassadors over the weekend. Mercosur has been proactive: it suspended Venezuela from the trading bloc last year, and invoked its democratic clause over the weekend, which could culminate in Venezuela’s expulsion. The Organization of American States (OAS) has been proceeding more slowly, despite Secretary General Luis Almagro’s hectoring. Almagro’s hopes that Venezuela might be suspended under the Inter-American Democratic Charter continue to run up against simple math; although a few countries seemed to shift their stance last week, many Caribbean nations remain beholden to Maduro, meaning that Almagro may still be short of the votes he needs, even if a special session of the body meets today as originally planned (early reports suggests that the new Bolivian chair of the Permanent Council may suspend the session). The Trump administration so far appears to be following the policies adopted by its predecessor. The United States has imposed targeted sanctions against individual Venezuelans, including Vice President El-Aissami, but has wisely avoided the temptation to more directly and unilaterally confront the regime, allowing Latin America to lead. But patience is wearing thin in Washington. A flurry of congressional declarations last week could presage more muscular legislative action in the months ahead; Senator Marco Rubio suggested that he would lean on recalcitrant OAS members, including by withholding assistance to countries that failed to support OAS action. Policymakers hoping to encourage a peaceful resolution of the crisis must pinch their noses and maintain a channel for dialogue with the regime while giving regime hardliners guarantees of non-reprisal if— but only if— they facilitate a rapid transition. Dialogue has been unproductive in the past, but keeping talks open at least offers the possibility of a strategic exit for regime members. UNASUR has been playing a key role in encouraging dialogue; it may yet be an effective good cop to the OAS’s bad cop, provided it does not allow itself to be used as a convenient pretext for the Maduro regime to string out talks endlessly. Guarantees for regime members who cooperate in finding a way out of the crisis are needed to ensure that negotiations are not seen as a zero-sum game. But the regime has played games for far too long to be trusted to negotiate in good faith. Simultaneously, therefore, regional governments must tighten pressure on the regime. The symbolic weight of an OAS suspension would be great— as Almagro said, “peer condemnation is the strongest tool we have.” But in addition to declaring the Venezuelan regime a pariah, regional and global allies could also help to keep hardliners over a barrel. Prosecutions, asset seizures, visa restrictions, and other sanctions would be most effective if they were employed not only by the United States, but also by Latin American and European allies.

Brazil is in the midst of a grand debate on its future in the global economy. The debate has been happening behind the scenes, obfuscated by the fireworks of the Lava Jato corruption scandal, overshadowed by the flashier discussions of political reform and the Temer administration’s fiscal reforms, and hidden from view by explosive scandals, such as the recent meat-packing disaster that threatens one of Brazil’s key export markets. But as a recent paper by David Trubek, Fabio Morosini, and Michelle Sanchez-Badin highlights, policy elites in Brazil have been rethinking the country’s place in the global economy. The debate takes place against a dramatic domestic recession and political crisis, but also against a highly uncertain international backdrop, which has fueled questions about development strategy, export markets, and Brazil’s foreign policy preferences. Trubek and his co-authors argue that three schools of thought have emerged, with different feelings about the role of the state in the economy and the priorities for market expansion and global alignment: The most deeply embedded of these schools of thought is the so-called “developmentalist” school, which has endured since the 1930s, and historically has had support from both left and right sides of the political spectrum. Developmentalists support a strong role for the state in the economy, and downplay the need for closer ties with developed economies, for fear of being shoehorned into neoliberal economic policies or constrained by restrictive trade agreements that might limit national options. Developmentalism has been knocked down but not beaten by the combined drama of the Lava Jato investigation that originated at state-owned behemoth Petrobras and the impeachment of President Dilma Rousseff. Developmentalism’s continued influence pushes Brazil away from alignment with the United States and toward South-South relations, including with both Latin America and the BRICS. A second school is the pro-opening group of free traders and open economy advocates that Trubek et al. label the “aberturistas.” They advocate a radical rollback of heterodox economic policies and state intervention, and seek free trade and greater integration into global value chains, from which Brazil is largely absent. They are eager to turn toward the United States and the European Union, and more importantly, to shift the dominant economic paradigm toward greater global integration. But historically, they have been few and far between; their influence in some academic institutions has not been matched by real power, save for a few rare appointments in the Treasury and Central Bank. Somewhere in the middle lies the “nationalist developmentalist” group ascendant in the Temer administration. Trubek and his coauthors describe this group as “chastened” developmentalists, seeking to preserve policy space and promote developmental policies, while “reining in” some of the most interventionist policies adopted by the Lula and Rousseff administrations. Foreign Minister José Serra was an exponent of this perspective, seeking accommodation with the United States and increased access to Northern markets without unduly constraining policy flexibility. His departure from the Temer administration last month is a loss to the nationalist developmentalist cause, but that group continues to have strong support within the government, not least because Temer is a pragmatist who is not hellbent on reforming the status quo beyond the changes immediately required by markets and ratings agencies. The authors are quick to note that Brazil may have concretely fewer options than the largely academic debate between the three schools suggests. The United States has withdrawn from the Trans-Pacific Partnership (TPP) and become far less interested in even discussing a bilateral agreement. Mercosur negotiations with Europe continue at their usual glacial pace. China is a treacherous trading partner, given that its exports compete directly with Brazil’s weakened manufacturing sector. As a consequence, “the idea that trade policy can easily be used to leverage major changes” in the developmental model seems “far-fetched.” More importantly, the authors note that alignment with many of the global trading agreements would require major changes to Brazilian industrial policies, to its state-owned enterprises, and to the regulation of foreign direct investment. None of these—with the partial exception of regulation—seem to be in the works. Nonetheless, the debate over trade may soon be pushed into the political arena. In the wake of the United States’ withdrawal from TPP, trade negotiations in the hemisphere are shifting in a more Latin America-centric, Asia-focused direction. In mid-March, ministers from Latin America and Asia met in Viña del Mar to discuss paths forward. It is telling that while neither China nor Brazil was a party to the original TPP, the Viña del Mar meeting included China, but not Brazil. The train toward Asia-Pacific integration is already picking up steam, with the Pacific Alliance countries – Chile, Colombia, Mexico, and Peru – energetically shoveling coal. As Trubek and his coauthors note, the Temer administration does not have a stable or strong mandate to undertake trade reform, nor does the administration seem inclined to move beyond its “nationalist developmentalist” posture. But this need not mean total immobility: Mercosur partner Argentina is increasingly demonstrating interest in inter-bloc negotiations, bilateral agreements remain a possibility, and the sensation of missing the trade train just as it stops in Latin America enroute to Asia could yet change the calculus of key economic players as Brazil heads into its momentous 2018 presidential campaign.