“We are going to carry out an anti-inflation plan of mutual aid for growth, for commercial and economic exchange with Latin American countries.”
As US lawmakers, both current and former, escalate their war of words on Mexico’s government while also raising the stakes over Mexico’s proposed partial ban on GMO corn, Mexico’s government is looking to strengthen its ties with like-minded governments to the south. To that end, it has proposed a plan to form a common front with at least five other Latin American countries to combat inflation, especially in food prices, across the region.
“We are going to carry out an anti-inflation plan of mutual aid for growth, for commercial and economic exchange with Latin American countries,” Mexico’s President Andrés Manuel Lopéz Obrador (AMLO for short) said during his daily press conference last Thursday.
For the moment, the fledgling plan is sparse on details. AMLO said the agreement will largely consist of removing tariffs and other trade barriers that prevent food from reaching domestic markets at low enough prices. Producers, distributors, merchants, importers, and exporters will be invited to join the initiative, he said.
“We are starting, we are going to start like this and little by little it will expand,” AMLO said. “We are going to invite producers, distributors, merchants, importers. Who sells, who buys. Get prices, remove tariffs, barriers that prevent you from obtaining food at a good price.”
It all sounds rather neoliberal in its basic conception but the governments AMLO has invited to join the initiative are exclusively left leaning. They include Lula’s newly formed government in Brazil, Gustavo Petro’s in Colombia, Luis Arce’s in Bolivia, Alberto Fernandez’s in Argentina, Xiomara Castro’s in Honduras and, most controversially for Mexico’s neighbour to the north, Miguel Diaz-Canel’s in Cuba. All have apparently agreed to take part in a teleconference on April 5, to be followed shortly thereafter by a face-to-face meeting.
“The foreign ministers, secretaries of Finance, Economy, and Commerce are going to start working to seek exchanges in exports, imports of food and other goods with the goal of confronting the high cost of living together,” AMLO said.
In recent years the AMLO government has tried to intensify regional cooperation in Latin America through mechanisms such as the Community of Latin American and Caribbean States (CELAC). In 2021, AMLO proposed using CELAC as a vehicle to create in Latin America something similar to the European Economic Community, the six-member economic association formed in 1957 that would eventually evolve into today’s 27-member European Union.
But he also emphasised “the need to respect national sovereignty and adhere to non-interventionist and pro-development policies” as well as ensure that any resulting structure is “in accordance with our history, our reality, and our identities.” AMLO hopes CELAC will eventually supplant the widely reviled Washington-based Organization of American States (OAS) as the main institution for intra-regional relations.
A Historic Bugbear in Latin America
With few exceptions, inflation has been a historic bugbear in Latin America. In Brazil and Mexico, the region’s two largest economies, anybody over the age of 40 can remember what life was like under high — or in Brazil’s case hyper — inflation. They don’t want to go through it again. To keep inflation in check and defend their currencies against a rapidly strengthening dollar, the Banco Central do Brasil and Banco de Mexico (Banxico for short) have respectively raised their benchmark rates 12 and 14 times over the past two years.
The results have been mixed. While the consumer price indices in both countries have falled in recent months, they still remain painfully high, at 5.77% in Brazil and 7.91% in Mexico. And the countries’ double-digit interest rates are placing further strains on struggling businesses and families. In the case of Brazil, Lula has even locked horns with the central bank over the high rates. Meanwhile, the Mexican peso has risen to a near 5-year high against the dollar, in part because it is one of the few large economies in the world offering a positive real interest rate. The Brazilian real has also strengthened somewhat in recent months.
In other parts of the region, inflation is an even bigger problem. In early February, Argentina’s central bank unveiled plans to issue a new 2,000 peso note in response to the country’s soaring inflation, clocking in at 98% in January). In Colombia, the annual inflation reached 13.28% in February, its highest reading since March 1999. Inflation is also close to decade highs in Chile (12.3%) and Peru (8.65%). Two outliers at the lower end of the spectrum are Ecuador (2.5%) and Bolivia (2.9%).
In contrast with Mexico, Brazil and many other economies in the region, Bolivia’s benchmark interest rate is currently relatively low, at just below 3.5%. There are two main reasons why Bolivia has been able to outperform on inflation while keeping rates relatively low: first, for more than a decade the government has operated a fixed exchange rate with the dollar; and second, it provides state subsidies for gasoline, food and other basic products. However, as a consequence of these long-running policies, Bolivia’s foreign currency reserves are running low.
Across Latin America as a whole, year-on-year inflation for 2022 was estimated at around 9.3%, well below previous inflationary outbreaks and indeed lower than other regions, including large swathes of Europe. In fact, the region’s average is slightly below the average for the OECD Member States (9.6%) and considerably below the average for Eastern European countries (13.4%).
But that doesn’t mean that inflation isn’t causing problems. Food prices account for a much larger share of inflation indexes in Latin America than in advanced economies, meaning that surging food prices have played a larger role in overall inflation. Once prices reach a certain level, many people stop eating.
As readers may recall, Panama, a traditionally low-inflation country, was brought to a standstill by nationwide protests last July after a surge in fuel and fertiliser prices triggered a sharp rise in basic food prices. While inflation may have fallen since then, in part due a subsequent commitment by the government to limit the prices of 72 basic food stuffs, the threat of further protests continues to simmer.
But Panama’s government has not been invited to join AMLO’s anti-inflation alliance. Nor, rather surprisingly, have the left-leaning governments of Venezuela, which has the highest inflation rate in Latin America, or Nicaragua.
Interesting Timing
AMLO’s announcement of the proposed anti-inflation bloc comes at a curious geopolitical moment. In recent months the so-called Alianza del Pacífico (Pacific Alliance), one of Latin America’s biggest trading blocs, has been put on ice, largely at AMLO’s instigation, following Peru’s latest political crisis. The bloc, which was already floundering before the crisis in Peru broke, currently has four full-fledged members — Peru, Chile, Colombia and Mexico — but other countries, including Costa Rica, were looking to join. That has also been put on ice.
At its formation, in 2011, all four countries were run by neoliberal governments closely aligned with Washington. But times have changed. Colombia, Mexico and Chile are all run by left-leaning governments, as was Peru before its elected president Pedro Castillo’s ouster in a parliamentary coup on December 7.
Both AMLO and Colombian President Gustavo Pietro have refused to recognize Castillo’s successor, Dina Boluarte, who played a leading role in toppling Castillo, currently languishing in jail on alleged corruption charges. AMLO has denounced the new government as unconstitutional and Boluarte as a puppet of the oligarchs who plunder the country’s natural resources. He has criticised the imprisonment of Castillo as a farce and injustice and granted asylum to Castillo’s family. While maintaining a more neutral stance, Chile’s President Gabriel Boric has condemned Boluarte for her brutal clampdown on protests, resulting in the deaths of over 60 demonstrators.
In retaliation, Boluarte’s government has expelled Mexico’s ambassador from Peru and recalled Peru’s ambassador to Mexico. Peru’s Congress has declared Gustavo Petro persona non grata, barring him from entering the country. In other words, the Pacific Alliance is looking increasingly divided.
The Alliance’s leaders’ summit was scheduled to take place in Mexico City in late November, but was called off at the last minute after Peru’s congress barred Castillo from leaving the country. The summit was postponed to December 14, 2022 and was to be held in Peru. Mexico was scheduled to hand over the pro tempore presidency of the bloc to Peru. But a week before that, Castillo was impeached by congress and jailed, so the summit was again postponed. Since then AMLO has refused to hand over the bloc’s presidency to Boluarte.
“I do not want to hand it over to a government that I consider spurious; let the members of the Rio group decide,” AMLO said in mid- February. “I do not want to legitimise a coup, we cannot do it, it goes against freedom, human rights and is anti-democratic.”
Lula + AMLO =?
The success or otherwise of this latest attempt at regional cooperation, if not integration, will depend in large part on how well AMLO and his Brazilian counterpart Luiz Inácio Lula da Silva (aka Luka), the region’s two most important leaders, are able to work together and find common cause. At the very least, both leaders appear to be on board with the idea.
Lula confirmed the plan through his social networks, adding that he intends to visit Mexico “as soon as possible.” He also invited President López Obrador to visit Brazil. One of Lula’s first actions on taking office was to confirm the return of Brazil to CELAC (the Community of Latin American and Caribbean States).
“We are going to work to strengthen Latin America, CELAC and the Unasur [the Union of South American Nations],” Lula wrote in a statement in January. “We are going to think about what we can do to better unite our neighboring countries and what brings us together.”
But Latin America has been in this position countless times before, going all the way back to the Bolivarian wars of independence in the early eighteen hundreds. Yet the dreams of regional cooperation or integration have come to nothing. On the contrary, Latin America has been wracked by division and enmity, largely as a result of ideological differences, territorial disputes and colonial interference and plunder. Recent attempts at integration, such as the Pink Tide-inspired initiatives of the early 2000s — ALBA and UNASUR — ended up achieving little, while the US-backed proposals of the 2010s, including the Pacific Alliance, have fallen flat.
There are already signs that Lula may be more focused on integrating economies in Latin America’s southern cone rather than the region as a whole. Further complicating matters is the fact that any new union would have to contend with a morass of already existing commitments, as the Jacobin’s Kurt Hackbarth noted last year:
The ink is barely dry on the United States-Mexico-Canada Agreement (USMCA), the sequel to the North American Free Trade Agreement (NAFTA) tying Mexico to the United States and Canada (and which was supported by AMLO himself).
As regular readers know, Mexico is a vital cog in the US’s nearshoring plans. Just last week, Tesla announced plans to build a $5 billion gigafactory in the Mexican state of Nuevo León. Microsoft also recently unveiled plans to open its first regional data storage center in Mexico in the second half of 2023, whose services are expected to help lure even more companies to the country.
But that, as Hackbarth continues, is far from all.
Of the twenty countries with which the United States has free-trade agreements, over half are with Latin America, including virtually all of Central America, as well as Colombia, Chile, and Peru. Several more, including Mercosur, have agreements in force or in process with the European Union.
There are also serious doubts about how much of a difference a regional anti-inflation alliance will actually make, particularly in the short term. Establishing common mechanisms for cooperating in this way is likely to take months, if not years. The commitments from already existing trade treaties could also undermine countries’ ability to reduce tariffs and other trade barriers with third parties, especially in an ad-hoc manner.
But it is also true that given that cooperating at a regional level may help to relieve some of the supply chain pressures that are driving inflation. More important still, given the ongoing threat inflation poses to the region’s already weakened economies as well as the fact that Latin American’s two super states, Brazil and Mexico, appear to be finally rowing in a similar direction for the first time in decades — and what’s more, in an era of rising multipolarity — this is a rare historic opportunity that is at least worth trying to capitalise on.