Brazil: The Proposal of the South for a Single Regional Currency

By Jorge Marchini, Resumen Latinoamericano on May 19, 2022.

Less than six months before the elections, the two-time president of Brazil and pre-candidate for the Workers’ Party (PT), Luiz Inácio Lula da Silva, who will face the current president Jair Bolsonaro in October, defended the creation of a single currency in Latin America, as part of the expansion of relations between the countries of the region.

The question that remains open is whether this idea of a common currency, of the South, would overcome the serious asymmetries that have deepened between large and smaller countries in the region in the last decades, beyond the speeches and the current positive climate of fraternity existing between the main leaders of the region.

“We do not have to depend on the dollar,” Lula said in a speech at the Electoral Congress of the Socialism and Liberty Party, in which the center-left party declared its support for the former president for the October vote.

Lula is leading in the polls for the elections in October indicating the sentiment to end the decadence and weariness of Brazilian society with the ultra-right government of Jair Bolsonaro, who is trying, with the support of the military establishment, to privatize the largest state-owned companies before the end of his government, among them the oil company Petrobras.

New advisors, new policy?

It should be noted that the proposal arose from an initiative of banker Gabriel Galípolo from an article also signed by former presidential candidate of the Workers’ Party (PT) Fernando Haddad, in 2018 when Lula was outlawed. Galípolo is bent on reducing the tension between Lula and Faría Lima, who is today a symbol of the powerful financial sector, a sign of the rapprochement of strong Paulista businessmen to Lula’s candidacy.

An economist from the Pontifical Catholic University of Sao Paulo, Gabriel Galípolo attracted attention after participating, with Deputy Gleisi Hoffmann, president of the PT, in a lunch with businessmen of Sao Paulo and being described as one of the new economists of the former president’s circle, a sign that the PT is seeking a less radical discourse on the economy.

Obviously, although nothing has been decided, the elections are moving around the emblematic figure of Lula. Polls give him a significant difference, and therefore expectations are growing about what a new PT government would be like.

History and perspectives

A starting point to put the announcement into perspective, even without much more detail and only the brief justification of a single currency, is to ask whether it is a more vigorous, realistic and inclusive proposal than previous attempts, especially considering that in PT governments there was a very significant distance between the positively integrationist proposals (speeches, permanent calls, summits) and the realities.

There were very important steps in which Brazil’s position was decisive (rejection of the FTAA in 2005, creation of UNASUR in 2008).  Moreover, Brazil prioritized other links, such as the BRICS (Brazil, Russia, India, China and South Africa) and the independent participation in the G-20, It was not by chance that UNASUR ended in 2019, with the Bolsonaro government, and that it was dissolved without shame or glory and without awakening mobilization or political or social protest.

Despite what was foreseeable, the imbalances in Brazil’s relations with other countries in the region deepened in those key years and the asymmetry was clearly felt in the commercial sphere. During the period, Brazil expanded its trade balances with eight of the eleven South American countries, especially with Argentina and Venezuela, followed by Paraguay, Peru and Ecuador.

The only relevant deficit in its trade balance was with Bolivia, a fact derived from the massive import of natural gas. From 2003 to 2010, South America’s share in Brazilian exports went from 13% to 18%, the trade balance increased by 450% and the volume of trade (exports plus imports) went from US$ 17.8 billion to US$ 62.9 billion.

It is worth noting, however, that it was due to Brazil’s negative procrastination during the PT governments that it was not possible to advance in the implementation of the Bank of the South and other proposals of what was then called the “new financial architecture” (Fund of the South, “Sucre” account currency), while Brazilian policy prioritized the positioning of its own bank, the National Development Bank (BNDES).

Today there is a growing recognition that the significant international crisis requires common positions in the region, and it is surprising, therefore, that there are no major comments on a proposal of such significance from a Brazilian presidential candidate with very high chances of winning.

So far it may have remained only as an advertisement or campaign image that Lula has not forgotten the region where Brazilians live together. But it is a reference that cannot be taken lightly. It deserves attention.

Between the Euro and the South

The fact that the authors of the project have taken the process of the formation of the euro as a model does not seem like a good one. In fact, one of the most serious problems of the creation of the euro was the abandonment, with the Maastricht agreement of 1992, of the introduction of active policies to avoid deepening asymmetries between European countries.

Today, internal European gulfs between countries and regions have deepened. The search for unity around the conflict in Ukraine should also be read as an attempt at regional reaffirmation, but at war.

The idea of the South based on the creation of a South American Central Bank with an initial capitalization by the member countries, proportional to their shares in regional trade, in a framework of even greater instability than that observed at the beginning of the century, could not only deepen imbalances between larger and smaller countries, but would not be a tool to face the abrupt acceleration of trade and financial difficulties suffered by the region.

Moreover, it could not only fail to solve problems, but eventually deepen them and generate very dangerous intra-regional tensions.

It is very significant that, almost in parallel with the southern proposal, the current Minister of Economy, the neo-liberal Paulo Guedes, said that a single currency for Mercosur would allow greater integration and a free trade zone, and would create a currency that could be one of the “fifth or sixth most relevant currencies in the world”.

In the face of the provocative policy of disarticulating regional ties carried out by the Bolsonaro government, a new PT government should elementally draw the proper lessons from the experiences and prioritize regional proposals. Regional integration and unity should not be seen as a distant dream but as an urgent, immediate need, based on realistic and consistent proposals, and not on mere occasional speeches.

An immediate agenda of the expected political change in Brazil should not be limited to an unsubstantiated or merely vague proposal for a common currency. It would be regressive to assume that in the current framework of limitations the governments of the region would give up their reserves to form the South. The experience of the negative role of the European Central Bank and the ties to the euro that inhibited an essential independent active financial policy in a crisis such as the one in Greece should be a lesson to be learned.

Not even a unit of account for regional trade has been established as a reference, as the Sucre tried to do, albeit without much success. In this way, the purpose expressed by Lula of “not depending on the dollar” would not be achieved.

The question that remains open is whether this idea of a common currency and “not depending on the dollar”, the South, would overcome the serious asymmetries that have deepened between large and smaller countries in the region in the last decades, beyond the speeches and the positive climate of fraternity existing between the main leaders of the region, or whether it would be more of the same and would repeat the frustration.

Many expectations are justifiably placed on the key October election in Brazil. A new horizon is needed.

Source: Resumen Latinoamericano