Globalization in the Southern Cone

Globalization in the Southern Cone

Globalization takes on new meaning in the Southern Cone with expanding opportunities for new partnerships and economic growth.
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Chile remained largely unscathed as its neighbors suffered from severe economic instability (Santiago, Chile).
Globalization, basically defined, is the increasing interdependence, integration and interaction among people, organizations and governments in disparate locations around the world. A decade ago in the Southern Cone, however, the concept of globalization became closely associated with Washington's policy agenda for the region. In the 1990's, the Southern Cone countries - Argentina, Paraguay, Uruguay and Chile - all subscribed to a package of economic policy prescriptions coined the Washington Consensus. Washington Consensus policies proposed to introduce various free market economic reforms such as fiscal policy discipline, the privatization of state enterprises and trade liberalization. The reforms were promoted by Washington-based organizations such as the International Monetary Fund (IMF), The World Bank and the U.S. Treasury Department as the central prescription for progress in all developing countries.

In that era, the Southern Cone countries were considered pro-globalization because they implemented U.S.-backed open market reforms. Government mismanagement, economic downturns and a few major crises in Southern Cone countries revealed the weaknesses of this one-size-fits-all approach to development. As a result, the U.S. Government and the IMF lost their credibility in the region and defiance and disassociation from U.S. foreign policy became the norm at the beginning of the decade. More recently, Southern Cone governments are successfully forging new international partnerships and deepening trade relationships. This has helped renew the region's optimism about globalization.

The 1990's - Globalization Backlash

Brazil's influence on its Southern Cone neighbors is significant. In the late 1990's in Brazil there were wide-spread concerns about the general economic situation. Unemployment doubled from a decade earlier and Brazil owed nearly 50 percent of its GDP to foreign creditors. International investors began to withdraw capital from Brazil as they feared a repeat of the South East Asian Crisis (1997) and the Russian debt default (1998). In reaction, in January 1999, Brazil abandoned its dollar-peg and devalued its currency, sparking a financial crisis. This major economic crisis was largely blamed on IMF-supported policies of the 1990s and global financial contagion.
In the 1990's the Southern Cone countries - Argentina, Paraguay, Uruguay and Chile - were viewed as pro-globalization because they willingly pursued U.S.-backed open market reforms.


Brazil's problems quickly spilled over the Southern Cone countries. It exacerbated an economic recession in Argentina that was already underway which quickly spilled-over to Uruguay, and to a lesser extent Paraguay. The example of Argentina is by far the most dramatic. In 2001, Argentina was hit by a Great Depression-style crisis that pushed half the country into poverty and lead to wide-spread anti-American and anti-globalization sentiments. Regardless of the fact that many of Argentina's ills were owed to a flawed currency peg, poor public administration and rampant corruption, the IMF and its number one shareholder, the United States, bore the brunt of the public anger and frustration. Today, anti-U.S. and anti-globalization sentiments in Argentina rank among the highest in all of Latin America.

In contrast, Chile remained largely unscathed as its neighbors suffered from severe economic instability. In fact, Chile's economy continued to grow as it pushed forward with free trade deals and liberal market reforms. Chile is now ranked the most globalized country in the Southern Cone, according to the 2006 Latin American Globalization Index from Latin Business Chronicle. The index considered factors that connect Latin American countries to the rest of the world like exports, imports, foreign investment, tourism and internet penetration.

Current Perceptions of Globalization

Between 2002 and 2006, left-leaning, populist leaders were voted into power in all Southern Cone countries as a result of public frustration with the previous governments' damaging economic reforms. Even in Chile where economic growth has continued, few improvements in income distribution and other social concerns led Chileans to vote in a Socialist President in early 2006. These new, left-leaning governments have so far proved more pragmatic than the ideological leftist governments of the region's past. They have not dismantled all past liberal economic reforms as some have feared. For the most part, they remain committed to expanding trade relations and open markets.

Southern Cone nations continue to integrate themselves into the international economy. More so than in the past, Southern Cone governments look beyond Washington. They are investing in trade relationships amongst themselves, as well as with China, India and other rising economic powers. The meaning of globalization has expanded. Rather than being tied up with the Washington Consensus policies of the past, globalization is now seen as the catalyst for sustained export-led growth and increased integration with the world.

Southern Cone countries are investing in trade relationships amongst themselves, as well as with China, India and other rising economic powers.


It may, however, take some time before public sentiment in all parts of the Southern Cone embrace a positive image of globalization. A Barómetro Iberoamericano 2006 poll revealed that while 80 percent of Chileans and 72 percent of Brazilians are positive about globalization, only 30 percent of Argentineans feel that way. It is apparent that Argentina's economic woes of the recent past have deeply affected the public psyche. There also may be some correlation between the degree of openness of a country's economy with its public's opinion regarding globalization. Chile is by far the most open economy in South America, and the vast majority of its citizens favor globalization. Argentina is considered one of the least open markets in the region, and the majority of its citizens remain skeptical about globalization.

A New Orientation

While some citizens of these nations may remain skeptical about globalization, the governments of Southern Cone countries have grown more confident thanks to five years of steady economic growth. They are primarily benefiting from high commodity prices on the world market which has led to increased exports of primary products. The emergence of China as an economic power and mass consumer of primary products has played a large role in the economic resuscitation of the Southern Cone countries. Brazil, Chile and Argentina are now principle exporters of raw materials to China. Brazil totaled $15 billion dollars in two-way trade with China in 2005, followed by Chile at $7.2 billion and Argentina at $5.3 billion. China in turn views these countries as attractive markets for its consumer goods. It is commonplace to see the label "Made in China" in retail stores throughout the Southern Cone.

The region has also experienced several years of unprecedented diplomatic, political and economic freedom. The end of the Cold War and the launch of the U.S. War on Terror in the Middle East have largely diverted U.S. attention from the region. Moreover, steady economic growth has led to increasing dollar reserves, which have helped Southern Cone countries buy some independence from international lenders. Brazil and Argentina, for example, used these reserves to pay off their IMF debt in full in late 2005 and early 2006, respectively. Ending dependence on IMF funds after the Fund-led 1990s was publicly applauded in these two countries.

Paying off the IMF was one of many decisions taken by regional governments to demonstrate that they were no longer tied to U.S.-led policy. In 2003, Southern Cone countries refused to support the U.S. war in Iraq. In November 2005, governments blocked progress on the U.S.-led Free Trade Areas of the Americas (FTAA) at the Presidential Summit of the Americas. Argentina, the host of the Summit, frustrated the United States even further by permitting a counter-Summit led by Venezuelan President Hugo Chavez which explicitly called for the end of U.S. "imperialism". It was a forum for anti-Bush and anti-globalization protestors alike, with an indiscernible distinction between the two. The counter-Summit was televised and more widely viewed than the official Summit.
While some people continue to protest against globalization, the governments and citizens of Southern Cone countries appear to be moving beyond negative views of globalization.


Generally speaking, Chile has not bought into the anti-American, anti-globalization sentiments of its neighbors. It remains committed to free trade and maintains friendly relations with the United States. It is the only Southern Cone nation to have signed a free trade agreement with the United States. Its Mercosur neighbors have proven more stubborn. They blame generous U.S. agricultural subsidies as the main stumbling block to free trade with the United States.

Political and economic conflicts with the United States during the past two decades have led Southern Cone countries to look toward Asia as a source for future growth. So far it is working, and its success is helping to change attitudes toward globalization. While some people continue to protest against globalization, the governments and citizens of Southern Cone countries appear to be moving beyond negative views of globalization. Thanks to years of export-led growth, there is growing recognition of the benefits of globalization.





Footnotes

1 Bolivia is also sometimes referred to as a Southern Cone nation. This author, however, has left Bolivia out due to historical and geographical differences from other Southern Cone nations. Brazil is generally left out of the Southern Cone grouping as most of the country lies above the Tropic of Capricorn. This author chose to include examples from Brazil due to its geographical proximity and strategic importance for other Southern Cone nations.

2 Mercosur is a regional trading bloc founded in 1991. Its original members include Argentina, Brazil, Paraguay, and Uruguay. Venezuela joined Mercosur in December, 2005. Chile, Bolivia, Perú, Ecuador, and Colombia are associate members.

Sources

"Globalization: Latin America Improves, Brazil Worsens", Latin Business Chronicle, November 20, 2006

"The Growing Economic Presence of China in Latin America", Claudio M. Loser, Visiting Senior Fellow Inter-American Dialogue, China-Latin America Task Force, December 15, 2006.

"International Perspectives on Globalization", Global Envision, January 11, 2007, Reprinted with permission from World Public Opinion.org.

"Prospects for Latin America; Opportunities and Challenges for 2007 and Beyond", Citigroup, December 20, 2006.

"What Latin Americans Think of Globalization", Global Envision, January 16, 2007. Reprinted with permission from Globalization 101.




Contributed by Janie Hulse Najenson, a writer for Global Envision based in Buenos Aires, Argentina. Ms. Hulse has an undergraduate degree in industrial and labor relations from Cornell University and a Masters degree in Latin American development from the London School of Economics. She has worked for both the public and private sectors in the areas of corporate communication and academic research.

To read another Global Envision article about Latin America and globalization, see What Latin America Thinks About Globalization.



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