Articles

The North-South Agenda Papers, Number Sixty, January 2003
University of Miami, ISBN 1-57454-133-1

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Though the aftershocks caused by the January 2002 implosion of the Argentine economy are still being felt throughout South America, this paper will attempt to illustrate why there are many reasons to remain optimistic about MERCOSUR’s future viability. That scenario, of course, carries important implications for the United States’ strategy in negotiating a Free Trade Area of the Americas (FTAA) by 2005.

INTRODUCTION

Almost from the day it was launched on March 26, 1991, skeptics have predicted the imminent collapse of the Common Market of the South (Mercado Común del Sur — MERCOSUR), while some economists have fretted about the project’s supposed protectionist designs to create a trade fortress. The most memorable example of the latter was a 1996 report written by a World Bank economist that relied on out-of-date trade statistics and attributed to MERCOSUR policies that were actually pre-existing national automotive regimes.1 More recent tirades have tried to blame Argentina’s economic meltdown on its MERCOSUR membership.2 A well-known economist from a New York City investment bank has even gone as far as to proclaim MERCOSUR dead.3 Given all the invective directed against efforts to integrate South America’s Southern Cone economically over the past decade, it is not surprising that MERCOSUR is misunderstood by many in North America.

Despite recent setbacks to intraregional trade flows in the Southern Cone, there is no danger that MERCOSUR is about to disappear. For one thing, the new President of Brazil, Luiz Inácio Lula da Silva, has made MERCOSUR’s revival a priority, as underscored by visits to Argentina and Chile even before his official inauguration. Lula appears to understand that part of the solution to the crises afflicting the region lies in deepening the economic and political integration begun by his predecessors. It was MERCOSUR, after all, that permanently banished the border conflicts and arms races that once predominated in the subregion and united the Southern Cone in a mutual crusade to support democratic forms of governance.4 MERCOSUR was also a catalyst for hundreds of cross border investments, a phenomenon virtually unknown prior to the 1990s and one that needs to be further encouraged as part of a strategy that facilitates the creation of internationally competitive subregional firms. Once economic growth returns to the Southern Cone, the dramatic annual increases in intraregional flows that MERCOSUR experienced prior to 1998 will undoubtedly return, further facilitated by the fact that all four core member states (Argentina, Brazil, Paraguay and Uruguay) now have similar currency regimes.