beyondbrics

Finance ministers and central bankers from the Unasur South American regional bloc will meet in Buenos Aires on Friday – their second meeting in as many weeks – with what looks on paper like a mission impossible: agreeing joint responses to the financial crisis from a bloc with disparate political and economic visions.

Roberto Feletti, Argentina’s deputy economy minister, said ahead of a technical preparatory meeting on Thursday that the ministers would be discussing responses such as bolstering the region’s $120bn internal market at a time when export markets may face contraction; to support trade in domestic currencies within the region, rather than in dollars; to accelerate the creation of a long-planned regional lender, the Bank of the South; and to coordinate intra-regional contingency credit lines among the central banks, which have reserves of $450bn, in order to enable a rapid response in the event of speculative attacks.

Will any of this do any good?

Analysts are unconvinced. First, it’s hard to see how countries which follow diametrically opposed economic policies can possibly agree on crisis-busting strategies. Unasur, whose members are Argentina, Brazil, Bolivia, Chile, Colombia, Ecuador, Guyana, Paraguay, Peru, Surinam, Uruguay and Venezuela, is a largely diplomatic body, and a pretty toothless one at that. As Boris Segura at Nomura points out, there are already two competing trade blocs among its members – the Andean Community and Mercosur. So while talking of unity will strike a fine-sounding chord,  Segura said at the end of the day, Unasur “will come up with a nice, fancy declaration with very little substance.”

Instead of seeking to speed up the creation of the Bank of the South, which has already been in limbo for several years, “they should focus on strengthening the instruments that are already up and running, like the Andean Development Corporation and FLAR (Latin American Reserve Fund),” Segura added.

Aldo Abram, director of the Foundation for Liberty and Progress, a think-tank, said seeking to promote the use of local currencies for trade was “fairly pointless” since what matters most is not the currency of trade but their reserve currency, which remains the dollar.

He saw Venezuela, Ecuador, Bolivia and Argentina as being the countries most exposed to a crisis. No surprises there.

Argentina is in the thick of a presidential election campaign with primaries on Sunday that will serve as a kind of nationwide opinion poll and give the clearest clue yet as to whether Cristina Fernández, the president and race leader, can win a first round victory or whether recent provincial defeats and a resurgent opposition can push her into a run-off. Even though the government says it is shielded from the brunt of the economic turmoil sweeping Europe and the US, Abram reckons Argentina was far better prepared to resist crisis back in 2008. Since then, Argentina has used reserves to pay debt and its fiscal surplus has eroded.

But he noted: “However useless any measures announced on Friday are, it might give people confidence (to see officials coming up with plans). All this functions on the basis of expectations and perception.”

Indeed, the crisis may provide a convenient justification for protectionist policies, even though Argentina and Brazil have been applying them since before the crisis, Segura said.

Ministers and bank governors meet on Friday and a news conference is due in the afternoon.

Related reading:
Dream of a unified Latin America remains disrupted, FT
Venezuelan trade plans to backfire?, beyondbrics
Colombia to Brazil: where’s the trade?, beyondbrics