-Caveat Lector- Brazil/Venezuela GLOBAL INTELLIGENCE UPDATE Venezuela and Brazil Step up Latin American Integration Efforts May 19, 1999 SUMMARY Venezuelan President Hugo Chavez and Brazilian President Henrique Cardoso have agreed on concrete measures that would lead to the establishment of a Latin American free trade zone. Their stated objective is to create an economic bloc that could counterbalance U.S. economic power in the region. Because the grand vision of regional economic integration is practically unattainable, given the current circumstances in Latin America, its only real objective is to serve the domestic political objectives of its populist and nationalist creators. ANALYSIS During his recent visit to Brazil, Venezuela's President Hugo Chavez received Brazilian President Henrique Cardoso's support for the idea of integrating two Latin American regional economic groupings -- the Common Market of the South (Mercosur) and the Community of Andean Nations (CAN). The two politicians agreed on concrete measures that would lead to establishment of a free trade zone in Latin America. As part of their effort to create a Latin American economic bloc, the two countries agreed to establish a continental-wide company for exploration and development of oil by merging parts of national oil companies of major Latin American oil producers. The stated purpose of their efforts is to counterbalance the United States' economic power in the region. While the plan for regional economic integration is significant in intent, its realization, demanding the delegation of individual state's powers to supra-national bodies, may prove impossible in the current Latin American economic environment. At their meeting, Chavez and Cardoso agreed to establish a preferential tariffs agreement between Mecrosur and CAN, stressing that the measure would enable a speedy creation of a free trade area. Cardoso said that the integration between the Mercosur member countries (Argentina, Brazil, Uruguay, and Paraguay) and the CAN member countries (Bolivia, Colombia, Ecuador, Peru, and Venezuela) would produce one of the most powerful economic blocs in the world. The two leaders openly defined the objective of the economic integration, which would be to prevent the Latin American countries from becoming "increasingly dependent on the United States." Reportedly, certain Brazilian diplomats expressed their hope that such an economic bloc would have "greater autonomy to negotiate with the European Union and counterbalance the United States' economic power." As part of the Caracas-initiated effort to integrate Latin American economies, Brazil and Venezuela plan to establish a new continental-wide oil company called Petroamerica. Venezuela's Energy Minister Ali Rodriguez said on May 11 that the two countries intend to merge part of their state-owned oil companies -- Petrobras and PDVSA -- to form the new company, Petroamerica, likely be created before the end of this year. Consequently, other Latin American companies would be invited to join the international enterprise. Chavez had also introduced his Petroamerica proposal during his recent visit to Colombia. With regard to future members of Petroamerica, Chavez emphasized that the venture should not be limited only to the South American continent, but that an important North American oil producer, Mexico, should also join the negotiations. Venezuela, Brazil and other Latin American countries are stepping up their integration efforts as a consequence of and in an attempt to deal with their dramatically declining economic performance in 1998 and the first part of 1999. Venezuela's oil-dependent economy was particularly hard hit by low oil prices last year and the future prospects are grim. According to the latest figures released by the country's central bank on May 17, Venezuela's economy is expected to shrink by 7.9 percent in 1999, which would be the economy's worst performance in a decade. Specifically, Venezuela's petroleum sector is expected to shrink by 12.1 percent, and the non-petroleum sector by 6.4 percent. Brazil, according to an OECD report published on May 18, will suffer "a severe recession" in 1999, with the economy contracting 3.0 percent and inflation increasing to 15.0 percent from 1.7 percent last year. According to the OECD report, Brazil "remains the key source of uncertainty" for South America. The OECD forecasts that most countries in the Latin American region are headed for recession this year. Facing a grim economic reality and its possible political implications, Latin American leaders are looking for someone to blame. In the case of Venezuela, the rhetoric of a nationalist Chavez is directed against the United States, a primary consumer of Venezuela's oil. Chavez claims that the main reason for his country's economic troubles is Venezuela's economic dependency on the U.S. Chavez is offering his nation a solution in his vision of an economically united Latin America that would be able to counterbalance the economic power of the U.S. and expand into new markets. The idea of a unified and strong Latin America is, undoubtedly, appealing to an economically struggling population. The question is, however, whether Latin American nations, with their diverse economies and limited mutual trade, are able to create a viable supra-national economic body. In other words, it remains an open question as to whether the creation of a successful supra-national economic body precedes or follows the emergence of commercial ties among nations. The idea of a continent-wide oil company may, in fact, pose the first serious problem for Latin American integration. Currently, oil-dependent countries, such as Venezuela, are surviving economically only due to the fact that they are able to secure foreign loans backed by the state oil company's assets. This, however, would not be possible, in the case of an international merger between several oil companies. The oil-dependent Latin American economies simply cannot afford to give up the control over their own oil companies or the profits that those companies generate in favor of a multi-national venture. This would result in declining confidence and potentially in economic collapse. Similarly, the creation of an independent economic grouping is extremely difficult due to deep structural differences among the individual Latin American economies. Moreover, mutual trade and specialization of production have not proceeded far enough among the Latin American nations to make them potentially independent of the United States. Because the grand vision of regional economic integration is practically unattainable in the current Latin American circumstances, its only objective is to serve the domestic political objectives of its populist and nationalist creators. [Sign up to receive free issues by e-mail...] [more GIUs about LAMERICA] [back to Archives] DECLARATION & DISCLAIMER ========== CTRL is a discussion and informational exchange list. Proselyzting propagandic screeds are not allowed. Substance—not soapboxing! These are sordid matters and 'conspiracy theory', with its many half-truths, misdirections and outright frauds is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. 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