Latin America in the International System

FHSS Bond University, Australia

Week 2:

Latin America in Transition:

From Colonisation to Nationalism to Globalisation

Topics: -

1. The New International Order: The Nation-State and Uneven Globalisation

2. International and Regional Development

3. Brief Test Case: Argentina

4. Brief Test Case: Venezuela

5. Prospects for the Future

6. Bibliography, Further Reading and Resources

1. The New International Order: The Nation State and Uneven Globalisation

As we have seen last week, Latin America faces numerous social, political and economic challenges. In this region, viable nation-states have been constructed, as has a regional international system that recognises that efforts should be made to improve regional cooperation, reduce direct conflict, and empower the region as a whole. Likewise, as most Latin American nations open to the global economy and open up their markets, this form of liberalisation has been found to have risks as well as benefits to developing nations. Several models as to how Latin American nations can most effectively open to the global system have been proposed (touched on briefly below).

Latin America, of course, comprises a wide range of different countries, cultures and developmental situations. The term is being critically used in the sense of a partial regionalization, based on partially shared history, partially shared cultural systems (see lecture 1), and a sense of conscious diplomatic cooperation (to be discussed in later lectures). Over the next several weeks we will look in detail at particular countries, beginning with Mexico, Cuba and Colombia. One of the great ironies for the region, of course, has been that in spite of strong resources in terms of agriculture, energy resources (though unevenly distributed), and mineral resources, this did not lead to high levels of uniform wealth, leading to the so-called 'paradox of plenty' where much of the region remained an industrial or resource periphery in the world economy (see Murray 1999).

These factors have lead to complex and uneven outcomes for Latin America. Thus, for example, even powerful economies in the region have had to struggle to maintain growth, per capita income, and the strength of national budgets. Argentina's financial crisis meant that while managing in 2002 to maintain exports with a current account balance of 8.6% (of GDP), suffered negative real growth of over –10.6 (for higher figures, see below), inflation of 42% and unemployment at 23%. There was some rebound in 2003 with growth of 8.7% and for 2004 growth of 6.1% (DFAT 2004). However, GDP per capita has drooped seriously, from $7,766 in 1999 down to $3,811 with unemployment at 12.8% in 2004 (DFAT 2005). Brazil in 2002 had GDP real growth of 2.5%, but had a current account balance of –4% (of GDP), 4.4 inflation and 6.3 unemployment, and required continued aid of up to $30 billion in total from the International Monetary Fund (IMF) through 2002-2003 (DFAT 2002; Strategic Comments 2002a). Growth in 2003 was estimated to be only - 0.2 but grew to around 3.5% in 2004 (DFAT 2005). Mexico has had real GDP growth of 2%, a current account balance of - 2.9% (of GDP), and inflation 4.7% for 2002, and growth of 1.3% in 2003 and 4.0 in 2004 and was able to sustain per capita GDP at around US$6,000 (DFAT 2005). Chile has been one of the recent success of the region, but has had somewhat modest real growth in 2002 of 2.1%, a negative current account balance of - 1.3% (of GDP), inflation of 2.2% of and unemployment at 10%, but managed estimated growth of 3.3% in 2003 and 5.0% in 2004 (DFAT estimates, reported through 2002-2005). These figures only give a very rough snapshots, but indicate either past economic crises, growth from low levels of development, or recent real but uneven growth.

There has been some modest growth in average GDP for the region through 1990s (around 7 percent until the end of the period), and some modest reduction in absolute levels of poverty from the peak periods of the 1980s, but through the 1990s some 210 million remained very poor, with 39-41% of household still within poverty (see Korzeniewicz & Smith 2000, pp8-15, p18). Moreover, this growth has not translated into higher levels of secure or permanent employment, in most cases has not greatly decreased heightened wealth distribution and inequality trends (the gap between poor and rich), and has created vulnerable groups who remain at risk, pockets of rural poverty and unskilled groups within urban conglomerates, e.g. urban unemployment on average rose to 18.4% in 1995 (Korzeniewicz & Smith 2000, p18; see further Hoffman & Centeno 2003). This sustained by the following groups that have differential access to wealth under the current conditions of globalization: -

* A "dominant class" consisting of 5% to 13% of the urban population, depending on the country. Concentrated in the capital, this class includes professional and small businessmen, high-level bureaucrats, and the very small number in the commanding heights.

* The "petty-bourgeoisie" of small shopkeepers and entrepreneurs making up 7% to 11% of the urban population. This is the sector that has perhaps been hit hardest with the globalization, or "mailing," of many cities.

* A "formal proletariat" consisting of 35 % to 40% of urban populations, including those working in larger factories and the lower levels of public service.

* The "informal sector" including 40% to 50% of the population, featuring owners of small illegal enterprises, workers in those enterprises, and the mass of street sellers and service providers with no security or protection.

To these categories we need to add . . . the population living in the countryside. (Hoffman & Centeno 2003)

Through the problematic 2001-2002 period it was true to suggest that: "Output is either declining or sluggish, unemployment is high, currencies are weak and living standards are declining. With the exception of Mexico, which until 2001 was pulled along by the dynamic US economy, the region has not staged a meaningful recovery from the downturn that began with emerging markets crisis of 1997." (Strategic Comments 2002a). There were slight improvements in several economies, e.g. Mexico and Chile through 2003-2004, and some growth in Argentina from a low 2002 level, but overall growth needs to be sustained to rebuilt strong economies with patterns of social stability (see Graham & Sukhtankar 2003).

At present, growth in national economies has mainly been of benefit to those with skills and education, and only to a lesser degree for the unskilled, for rural populations, and for vulnerable groups in marginal or shifting industries. This means that the issues of education, health and social services remain a major issue for region in sustaining 'social capital' for the future. Furthermore, volatile markets and currencies have created new groups at risk: -

According to this distinction, pobreza dura [enduring poverty] characterizes the situation of the "structural poor," who have never been incorporated into the labor market and lack the resources (in education, health, and information) required to gain access to the opportunities generated by economic growth. In contrast, the "new poor" are middle- and working-class persons displaced from employment in the formal sector into informal or precarious employment. For this group, economic growth affords greater opportunities because they possess the skills and resources necessary to escape poverty. (Korzeniewicz & Smith 2000, p16)

Several models have been proposed for the impact of globalisation on most developing Latin American countries. Most countries now recognise the need for 'trade liberalization and export orientation as engines of growth' (Korzeniewicz & Smith 2000, p20), even for Cuba. However, there are different 'low' and 'middle' roads to adjust to competition in the international system, the first with high social costs, the second moderated in a model called 'competition-plus-social model.' (Korzeniewicz & Smith 2000, p28). The low road can be summarised: -

The low road scenario places the transition costs and long-term burden of market reforms and the opening of the economy to global competition on the poor and unorganized sectors of society, and thus high and often rising poverty and inequality become additional characteristics of this path. The participation of social movements, NGOs, and contesting political parties in this scenario is generally limited to inclusion in clientelistic networks. (Korzeniewicz & Smith 2000, p40)

An alternative approach has been suggested, e.g. as used in Chile. This middle-road reduces some of the impact of globalisation: -

An intermediate middle-road scenario combines three features: a full-blown variant of market reform and sustained economic growth: a stable, relatively consolidated democratic regime with significant elitist and exclusionary traits; and a consistent reduction in unemployment and poverty (achieved through growth, greater inclusion, and targeted state expenditures) but meager results in reversing persistent inequalities in the distribution of income and wealth. Accompanying these features are policies that begin to be adopted to enhance transparency and accountability and to attack corruption and clientelism. (Korzeniewicz & Smith 2000, p40)

Globalisation, at first driven by economic and information flows, has followed with the intrusion of international organisations, transnational companies and international NGOs (non-government organisations) into the life of nations, migrants groups and communities around the world. Thus, globalisation is now driven both by globalisation 'from above' by 'power' agencies (great nations, regional organisations, large corporations), but also by non-government civil, religious and interest groups organising from 'below' (see Herod et al. 1998; Brecher et al. 2000; Romero 2001). This is one approach of adapting to globalization that has become more important in recent years in Latin America (see Korzeniewicz & Smith 2000, pp19-21; examples will be discussed in later lectures, e.g. in the environmental area).

For much of Latin America, this means that regional and international trends are crucial for their internal political and economic stability, as well as for the hope of improved development in the future. Continued poverty, gaps between rich and poor, and harsh 'structural adjustment' programs (Korzeniewicz & Smith 2000, p22) can lead to political turmoil (as in Argentina and Venezuela), thereby threatening economic growth and intensifying the causes of tension.

2. International and Regional Development

International politics has been marked by strong but uneven regional cooperation. Deep integration, as has occurred in the European Union, however, has not been the aim of this process in Latin America. Rather, regional cooperation has aimed as reducing and managing internal conflict, as well bolstering the ability of the region to prosper in the global system. These regional trends can be summarised: -

* Old fashioned competition among powers and ongoing border disputes among nations remained a reality in Latin America throughout the 19th and much of the 20th century. For a time there were serious tensions among the ‘Southern Cone’ (so called because of the shape of the southern part of South America) countries of Brazil, Argentina, and Chile, while great power competition between Argentina and Brazil would only soften through the 1980s and 1990s with increased trade and cooperation through the Mercosur organisation (Mercado Común del Sul, Common Market of the South, active from 1990, called Mercosul in Brazil). Mercosur's members include Argentina, Brazil, Uruguay, Paraguay, while Chile and Bolivia are associate members, with Mexico and Venezuela becoming associate members in 2004 (Sissell 2001; Johnson 2001; Falcoff 2000; Atkins 1999, p38; Gotkine 2004). Competition between Argentina and Brazil has reduced (see below), and tensions between Chile and Argentina over the control of three small islands in the Straits of Magellan (hence the Argentine saying: 'Argentina in the Atlantic, Chile in the Pacific', Falcoff 2000) eased due to papal mediation in Chile's favour. In recent years Chile has turned much of its diplomatic attention to solving border disputes with Peru and Argentina (Johnson 2001). At the same time, most of these countries have continued defence modernisaton programs, and from 1997 the U.S. lifted its restrictions on selling advanced weapons to Latin America (Johnson 2001). Border disputes have only been slowly reduced in seriousness, e.g. Ecuador and Peru fought a war over disputed border territories during 1995-1996. Likewise, in recent years there have been tensions over the movements-over the Colombia-Venezuela border that have at times undermined warming relations between the two governments, e.g. with claims that Colombia paid mercenaries to arrest the Colombia guerrilla commander Rodrigo Granda on Venezuelan territory in January 2005. Brazil, Mexico and Peru have offered diplomatic services to reduce these tensions, and it is possible that the Organisation of American States (OAS) may play a role (BBC 2005a).

* In order to reduce conflict among nations, and to avert pressures from globalisation, Latin America has been very active in regionalisation and regional organisations, including the OAS (Organization of American States), Mercosur, NAFTA (North American Free Trade Agreement), the still debated FTAA (Free Trade Area of the Americas) process (which former President Clinton had hoped would create a hemispheric free trade area by 2005), the Summit of the Americas, the Community of Andean Nations, and the Rio group (of 18 Latin American Countries), a 'multipurpose, transregional association' designed to reduce tensions through declarations creating the Permanent Mechanisms of Consultation and Political Coordination (Atkins 1999, pp195-196; Johnson 2001; discussed further in later lectures). Regionalism has seemed to be a growing and deepening trend from the early 1990s: -

Hemispheric relations have also undergone a sea change toward a more institutionalized cooperation. This has been manifest in many issues: economic cooperation as embodies in NAFTA, MERCOSUR, and the Free Trade Area of the Americas (FTAA) process; political cooperation through multilateral diplomacy (for example, the Ecuador-Peru conflict); peacekeeping operations (Central America, Haiti); and a more active Organization of American States, charged with defending democracy. Even security cooperation has been shown in confidence-building measures among historical rivals in the Southern Cone and peacekeeping operations in Central America and the Caribbean. Terms such as multilateralism, regionalism, consensus, and convergence pepper descriptions of hemispheric relations . . .

Regionalism, moreover, means more than just free trade or military confidence-building measures; it refers to the hemispheric wide convergence of values promoted by the development of multilateral institutions, the development of a common community. The Summit of the Americas process best exemplified this new regionalist impulse. The three summits over less than ten years (Miami 1994, Santiago 1998, Quebec 2001) have solidified common principles and priorities in areas such as strengthening democracy, education, and sustainable development; promoting free trade and the development of science and technology; and reducing corruption and transnational crime. Even the summit organization itself, with little institutional infrastructure of its own, utilizes existing multilateral and regional organizations to implement it plans of action. (Johnson 2001)