Relations with Brazil face uncertain future in Bolsonaro era

Brazil’s incoming government has sparked controversy by casting a veil of uncertainty over its future relations with Argentina and the Mercosur trade bloc, with President-Elect Jair Bolsonaro showing more interest in strengthening ties with international superpowers than regional neighbours.

After days of diplomatic tension, the president-elect’s son, Eduardo Bolsonaro, sought to smoothe relations this week, saying there’s no reason to think Argentina “will be left out.”

He added that he saw the Argentine government in a “good light.”

“I liked hearing Macri talk about the reduction of public spending because Argentina is coming out of a crisis which demands unpopular measures,” Bolsonaro said Monday in a radio interview with Mendoza’s MDZ Online.

His comment came after Brazil’s incoming Finance Minister Paulo Guedes sparked fears on Sunday by declaring that Argentina and Mercosur are no longer Brazil’s priority.

“Argentina is not a priority, neither is the Mercosur,” he said. “Brazil is a prisoner of ideological alliances and this is bad for the economy.”

However, two days later he apologised in an interview with La Nación, stressing the fact that Brazil’s main focus is currently on domestic economic issues.

“Our main problem today is the fiscal deficit. So, I never wanted to offend Mercosur or Argentina,” he said Tuesday. “What I wanted to say is that today my priority is public spending. So, nothing against Mercosur. Only it is not a priority.”

The bloc’s once-protectionist approach to trade seems to collide with the new government’s neoliberal aspirations amid a seeming desire to go it alone in the international arena. Guedes’ comments suggest Brazil will determine its future trade policies solely based on its own interest, said Ivan Briscoe, director at Crisis Group’s Latin America and Caribbean programme.

“It’s a paradigm shift – the opposite of Lula’s diplomatic standpoint,” said Briscoe, referring to former president Luiz Inácio Lula da Silva, “Brazil will seemingly not pursue regional trade and integration with great interest, but will focus on building relations with more prosperous countries outside the region.”

Industrial entrepreneurs warned of severe consequences if Bolsonaro’s future government sought to pursue bilateral treaties that risk weakening the bargaining position of the South American bloc.

“Throughout the world, internal and regional markets are platforms to gain competitiveness and scale,” said Diego Coatz, executive director at Argentine Industrial Union (UIA), in a Twitter comment. “The Mercosur has to be a base for our countries to be inserted in the world in an intelligent way. Taking a different path would be a serious strategic error.”

But Brazil’s early stances could also represent a wake-up call for the bloc. Mercosur’s tendency to fall back on protectionist policies has, for years, prevented Latin American countries from successfully coordinating trade policies toward third countries.

“Mercosur is a process of integration that dates back to more than 30 years,” said Foreign Minister Jorge Faurie during a press conference Monday at the Casa Rosada. “Even before the elections in Brazil – even since 2016 – it’s clear that we have to undergo a process of flexibilization, linked to how we advance in [trade] negotiations with other countries.”

There has been no news about a first bilateral meeting between Bolsonaro and Macri yet, though some have speculated it might take place on the sidelines of the G20 Leaders Summit at the end of the month. However, one things is certain: the president-elects first foreign trip will not be to Argentina, as is tradition, but instead to Chile, incoming Chief-of-Staff Onyx Lorenzoni said Monday.

“I think he’s trying to deconstruct everything that has been done under Lula,” said Gustavo Ribeiro, founder of The Brazilian Report.

For Argentina, relations with its giant neighbour – its largest trading partner – are of paramount importance. In 2017, the country has imported Argentine products for a total of US$9.3 billion, almost 16 percent of Argentina’s overall exports.