Mercosur and Pacific Alliance: Latin America Divided

Argentinian President Cristina Fernandez de Kirchner participates in a Mercosur meeting in December 2014. (Photo: Ecuador Ministry of Foreign Relations)

Since the fall of Latin America's last dictatorships in the 1990s, a prominent trade alliance has emerged—the Southern Common Market (Mercosur). But as of 2011, Mercosur has not been alone as a regional bloc aspiring to elevate and unite the region. In fact, it mostly represents South America's center-left to leftist governments. Several of Latin America's key, more closely U.S.-allied counterparts have also created a bloc—the Pacific Alliance. Now more than ever, ideologies compete for what is the most successful tactic in surviving crisis.

According to a 2014 United Nation's report, "The Pacific Alliance and the Southern Common Market combined represent more than 80 percent of the regional foreign trade and over 90 percent of its GDP." Yet while the region's economic power has expanded dramatically in the 21st century, overall economic outlook in recent years is not so promising. Undoubtedly, there have been increases in raw materials sales spurred by China and Russia. Still, the whole region in 2014 achieved only 0.9 percent growth, a disappointing figure on the heels of a decade of steady development.

Differences in growth

Founded in 1991, Mercosur includes Paraguay and Uruguay and the very notable financial powers of Argentina, Brazil and most recently Venezuela. Countries under membership consideration include Bolivia and Ecuador. Undoubtedly, from the point of view of economic weight, Mercosur should be regarded as an economic powerhouse. It has a GDP of $4.58 billion (82 percent of total GDP in South America) and more than 275 million people (nearly 70 percent of South America). Overall, these nations make up one of the world's largest food producers and have the planet's largest known mining and energy reserves, particularly those exploited by Brazilian company Petrobras and Venezuela's PDVSA. However, this has not prevented Mercosur from entering a phase of collapse.

Brazil has recorded only minimal growth since 2011: a reality that has not been simple for a government already battling alleged scandals. In Argentina, the final months of President Cristina Fernandez de Kirchner's presidency also feature political scandal and corruption allegations. Venezuela's struggling economy has reached even more dramatic historic proportions, with an annual inflation approaching 100 percent, a free-falling GDP and a turbulent political crisis. Additionally, the global decline in the oil price has been a blow to the region. The situation has gone as far as to encourage the smaller, although growing economies of Paraguay and Uruguay to look beyond Mercosur out of desperation for functioning trade partnerships. Even troubled Brazil now looks to joining Mercosur's newer counterpart.

While Mercosur struggles, the Pacific Alliance has formed. It is comprised of Chile, Colombia, Mexico and Peru. Costa Rica, Panama and Guatemala are in the process of incorporation. All nations maintain positive ties with the United States and other Western powers. The bloc has 36 percent of Latin America's GDP and 50 percent of its trade, and attracts 41 percent of foreign direct investment. Mexico, Chile, Colombia and Peru have a combined population of 212 million people.

What are the implications of Latin American economics and foreign policy with the rise and contradictions of these two alliances? Will they continue to compete or decide to merge?

Protectionism vs. liberalization

Mercosur is an example of free trade among developing center-left to leftist nations with a protectionist attitude toward major financial centers and traditional world powers. Anti-imperialist modus operandi is prominent. The sentiment is not without cause or justification. In short, this attitude against ruling classes originates from a history of socio-economic inequality. It also stems from Western support for oppressive 20th-century autocracies and 21st-century multinational corporations with poor human rights records. While all Pacific Alliance countries have experienced similar injustices, the manner in which their 21st-century governments have handled it marks their divergence from their Mercosur counterparts.

While Mercosur's concerns of foreign intervention are rational and historically supported, many of the Pacific Alliance think otherwise. Specifically, there are those who believe that some Mercosur nations' economic protectionism has caused more long-term harm than benefit. Examples include strong barriers to lucrative U.S. trade and until recently vast misgivings from the European Union—areas where Pacific Alliance members have traditionally been more open. Investment and currency diversification have also become more difficult for Argentines as the government clamps down on money flowing out of this recession-plagued country. Accompanied by scandals and political crises, an uncompromising sense of anti-imperialist sentiment and protectionism may play a role in Mercosur's paralysis.

The Pacific Alliance has experienced similar economic setbacks as Mercosur. This includes the descent of oil prices and political crisis in general. But its impact on the Alliance has not had the same outcome, and economic policies have been guided by very different guidelines than Mercosur. Principally, the center-right to right nations making up the alliance have avoided protectionism against the big industrial powers, encouraging pragmatic free-trade treaties with the United States and the European Union.

Since its inception, the countries of Mercosur—Argentina and Venezuela in the lead—have accused the Pacific Alliance of being a U.S. instrument of intervention that undermines Latin America's economic sovereignty and potential. On the other hand, the right-sympathetic Pacific Alliance believes these claims are false. They instead assert that its nations have not undergone any plundering, but on the contrary now exhibit positive results in their domestic economies. Whether correlated to alliance membership or simply traditional political ideology and trade partnerships, they have not only avoided Mercosur nations' recession lethargy, but their data shows growth throughout 2014 with a forecast to further improve this year.

Unity is powerful, but is it possible?

The unity of the two blocs would ally Latin America's largest and most promising economies. With different views on free trade, the blocs are normally seen as antagonistic. But recently, foreign ministers of Mercosur and the Pacific Alliance have sought to break these prejudices and move towards regional integration.

"We must stop once and for all the prejudice that there are two opposing blocs that do not talk to each other," advocated Chilean President Michelle Bachelet, the main driving force behind this initiative. While "Mercosur and the Pacific Alliance uphold different economic models ... both bodies are important. The gradual and pragmatic convergence would provide significant benefits to the countries of each of these blocs," she said in November 2014, standing beside Chilean Foreign Minister Heraldo Muñoz. He added, "It will not be a simple task, but we are not seeking unrealistic expectations."

Foreign Minister Muñoz has a point. In a rational world, the two blocs' integration would be ideal. But is this hope a smoke screen? While those like Bachelet endorse Mercosur's ideology, some debate it has contributed to its current issues. Brazil, leaving aside its internal problems, aims to the European Union. Paraguay and Uruguay have minimal weight in Mercosur and, along with Peru and Colombia, are looking beyond at the world. Therefore, unless there is some radical change, the union between these two powerful Latin American blocs may remain only rhetoric.

Ailana Navarez is a writer, photographer and political analyst with a concentration in Latin America. She is pursuing a major in government with a specialization in international relations and a minor in psychology at Harvard Extension School. She is a South America regional specialist for Pulsamerica (a U.K.-based Latin America analysis firm) and has been featured in several international magazines and news outlets, including Telesur, Mercury Magazine and Casa Rosada.

View the Worldpress Desk’s profile for Ailana Navarez.