Latin America: Of brothers and cousins

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The relative harmony of the Pacific Alliance means that Argentina and Brazil must now start to listen to their little brothers in Mercosur.

In August Euromoney was in Asuncion, Paraguay. During a meeting with one of the country’s most successful businessmen, the conversation turned to Mercosur (the trading bloc of Argentina, Brazil, Paraguay, Uruguay and Venezuela).

The businessman leapt out of his chair and disappeared, returning with the local daily newspaper. He thrust the paper on to his desk and thumped his hand down on an article that announced that Brazil was cutting the limit of tax-free expenditure that its citizens could spend in the border town of Ciudad Del Este from $300-equivalent to $150. "And they’re proud of it!" he exclaimed, getting so angry that spittle leapt from his mouth as his spoke. "This is supposed to be a free trade union and look how Brazil treats us!"

Vehemence aside, this view was pretty common in Paraguay and is also widely shared in Uruguay. Long described as four brothers who don’t get along (and now Venezuela has joined to add further dysfunction to the mix) Mercosur has never achieved any substantial economic agreements or progress. Instead, dominated by Brazil and Argentina, it has become more of a political organization – a talking shop.

This never really mattered until the Pacific Alliance (Chile, Colombia, Mexico and Peru) came along. Now the region has an example of a union of countries who differ politically but agree economically, and whose function is to 'simply’ build trade and growth.

The smaller brothers in Mercosur now look enviously at their cousins in the north.

Uruguay and Paraguay have both been granted observer status and are pursuing bilateral agreements with members of the Pacific Alliance but for now it is unlikely either will seek to split from Mercosur – their economies and trade are still too interlined with their large brothers for that. But Mercosur needs to change.

Even Argentina is beginning to inch towards Mercosur reform – the leading candidates to be next president are all making the right noises about the swift achievements of the Pacific Alliance. A new president in Brazil might have added to this dynamic, but the re-election of Dilma Rousseff quashes such hopes.

But after 20 years of swapping talk of political rhetoric, it won’t be easy to start to make productive economic agreements. For now, the Pacific Alliance has the floor.