Mexico’s economy going south? Is that good?

From the International Herald Tribune:

Mexico and Argentina said Monday they are negotiating a free trade accord for vehicles and car parts that would make foreign car companies with factories in those countries more efficient.

“It’s an agreement we know will benefit both countries enormously,” President Felipe Calderon said in a news conference with Argentina’s leader, Nestor Kirchner. “We could have a huge potential for growth in this area.”

We don’t think about how important the Mexican auto industry is to the United States, but an agreement on auto parts isn’t likely to get people interested. When the Argentine President said that the proposed Great Wall of the Rio Grande is an affront to all Latin Americas the usual suspects commented (and, no I’m not going to bother linking all over the place to every anti-immigration “fuck you Argies” site). It’s a standard AP article on Latin America. Except for one overlooked phrase:

Kirchner also said he would personally help Mexico improve relations with leftist Venezuelan President Hugo Chavez and that Mexico has an open invitation to join the South American trade bloc Mercosur.

Some negative reference to Hugo Chavez is de rigur in AP-landia these days, but that’s not what I’m talking about. Mexico is being openly courted to get out of NAFTA and join Latin America. THAT IS IMPORTANT…

We don’t hear much in the U.S. about Mercosur (hell, we don’t hear much about Latin America in general), though it is likely to be extremely important to the futures of all the Americas. Mercosur is still feeling its way around (but then, the European Community took 50 years to develop, and Mercosur has only been around for the last ten), and – if we hear anything – it’s only that Venezuela hasn’t quite joined yet. Or, as the U.S. press puts it, Hugo Chavez hasn’t joined – much to our relief. WE (and Canada) were counting on a U.S. led “Free Trade Area of the Americas”, and blame Chavez for killing OUR plan – and instead opting for the existing (though far from united at this point) Mercosur.

The Mercosur countries (Argentina, Uruguay, Brazil, Paraguay) and the “associate states” (Bolivia, Ecuador, Colombia and Peru) and semi-member Venezuela (there’s a diplomatic spat holding up Venezuelan membership) have been paying down their debts to the big foreign lenders like the World Bank, the International Monetary Fund and the Interamerican Development Bank. Hugo Chavez has his own ideas about development, but is in agreement, and likely to work with, what Mercosur itself has been organizing – Banco del Sur, a self-financed development bank.

The Global Policy Forum describes the problem with just one of the existing development banks this way:

The World Bank, based in Washington, is a multilateral institution that lends money to governments and government agencies for development projects. For more than twenty years, the Bank has imposed stringent conditions, known as “Structural Adjustment Programs,” on recipient countries, forcing them to adopt reforms such as deregulation of capital markets, privatization of state companies, and downsizing of public programs for social welfare. Privatization of water supplies, fees for public schools and hospitals, and privatization of public pensions are among the most controversial Bank reforms. While the Bank insists that “fighting poverty” is its first priority, many critics believe instead that it is responsible for rising poverty. Many also criticize its cozy relationship with Wall Street and the United States Treasury Department. The stormy resignation of World Bank Vice President and Chief Economist Joseph Stiglitz in late 1999, and his subsequent public comments, suggest that the Bank is not as benign as it claims to be.

Yeah. There were riots in Argentina over privatizing water systems (and the country went through a couple of presidents in a couple of months), Bolivia nearly had a coup and Mexico is roiled over “suggestions” that various public utilities be privatized. Even the most conservative proposals for Banco del Sur will take into account peasant economies and state services. Right now, Banco del Sur is mostly Brazilian and Argentine money. Their economies are recovering from the tender mercies of IMF and World Bank concern (fun fact – every Latin American country with a president or treasury secretary with a graduate degree from the U.S. universities that turn out the bankers who run the development funds over the 40 years went broke, or had to restructure their currency).

And this is where Mexico comes in. Mexico has been losing ground economically since joining NAFTA. Mercosur requires single membership (in other words, countries like Bolivia would have to pull out of the Andean Pact to join, though the two trade groups may merge, or Mercosur may make special rules for Bolivia). NAFTA was originally pushed by PRI President Carlos Salinas de Goutari, though PRI has lost much of its original enthusiasm for the trading bloc since then. The PRD and the smaller left-wing parties never liked it, and have been pushing for more pan-Latin economic intergration. ONLY PAN, and only the wing of the party to which Calderón belongs, have been cheerleaders for the status quo development plans.

Although the announced agreements between Mexico and Argentina only cover auto parts, Mexico has expressed real interest in Banco del Sur. The country won’t be pulling out of NAFTA any time soon, but under pressure from the “left”, it has been considering renegotiation of the treaty, and it would not have to join Mercosur (where it is already an “observer”) to become a member of Banco del Sur. Once Venezuela works out it’s differences with Brazil, that’s going to change the whole pan-Latin development picture… and our economic ties to Mexico.

I’m not an economist, nor a banker. Nancy Davis, at Narco News isn’t either. She writes about the existing development project in Mexico (Plan Puebla-Panama). Even skipping over the Marxo-academic phrasing, it sounds as if the locals are getting screwed. They’d probably still get screwed by developments funded by Banco del Sur, though there’s a better chance of their being included in the plans.

The Canadian economics website, Angus Reed Report, blames Mercosur for killing the “Free Trade Area of the Americas” (which would benefit Canada), but notes that “free trade” conceptually is salable to the Latin American voter:

Investors’ Business Daily wonders whether “WE will clear Latin America for Takeoff” and misses the point that the Latin Americans may not give a shit what we think about it.

In January 2006, Laura Carlsen speculated in an article for the Center for International Policy on Mexican participation in Mercosur. At the time, she saw the Fox Aministration as likely to act as a “trojan horse” for their northern neighbors, but that appears to be changing now.

The Bank Information Center sees Banco del Sur as “direct challenge to the Northern based IFIs [International Financial Institutions] struggling to remain relevant to the region.”

I was able to get into subscription only “The Banker” for an in-house look at the effects of Banco del Sur on international lending. At the time the article was published (in May) Hugo Chavez was the big worry. The link may or may not get you in, so I’ll try posting my copy somewhere accessible.