South American Development Strategies and the end of

South American Development Strategies and the end of the Commodity Boom: a GPE Perspective Steen Fryba Christensen (Aalborg University; sfc@cgs. aau. dk) Presentation at PUC-Minas seminar – August 25, 2017: ”I Seminario Internacional PPGRI: Segurança e Desenvolvimento Internacional em um Mundo Incerto”

Integrating ”terms of trade” and ”commodity price volatility” in GPE theory and analysis. • ”South America is uniquely exposed to world commodity price turbulence” (World Bank 2016: 27 – The Commodity Cycle in Latin America: Mirages and Dilemmas). • ”While this may be a well-known fact, its overwhelming dominance has perhaps been insufficiently appreciated. Fluctuations in South America’s key macro indicators … have mirrored terms of trade fluctuations to an unsettling extent. ” (World Bank 2016: 5 – The Commodity Cycle in Latin America: Mirages and Dilemmas). • Exploring the multiple consequences of South America’s ”Commodities Sypercycle” (2003 -2017)

Focus and aim • 1. Focus: South American Development Strategies 2014 -2017 (economic and foreign policy strategies). • 2. Aim: To understand South American development strategies and global insertion from af GPE perspective based on the comparison of three representative country cases: Bolivia, Brazil and Peru. • Aim: To contribute to understanding the current South American ”situation” in the light of GPE theory integrating TOT/Volatility.

Structure of the presentation • 1. Background: Neoliberalism (1990 s). China’s Rise and transformation of the global order. The commodity supercycle and South American development strategies, development and global insertion (2003 -2013) • 2. Theory: “Commodity Price Volatility” + “Terms of Trade” (PST) • 3. South American Development Strategies 2014 -2017 • 4. Key debates on: the current South American situation in a period of uncertain times.

1. Background • The Global System: From unipolarity and Western/OECD economic dominance. Towards a new economic balance. Diffusion of power in the GPE. Rise of Asia/China and much of the South – Commodity Boom. South-South ”alliances” and North-South ”contest” GEG – ”BRICS” etc. Multipolarity and multilateralism. International financial crisis. • South American Development Strategies: Neoliberal homogeneity in the 1990 s. Heterogeneous national development strategies in the 2000 s. ”Commodity consensus”. Different approaches to commodity ”windfall”. Different foreign policy orientations. Bolivia, Brazil and Peru represent this path and variety (Ven, Arg, Chi)

Background: South American Development Strategies 2000 -2013 • Bolivia: Anti-imperialism and geopolitical ideological focus. South Cooperation. ALBA. Unasur. • Refoundation of the state. • Nationalization. Social orientation. Fiscal prudence. Stable economic growth – multiplyer effects from posivive terms of trade. National savings prudence. (Comparison with Venezuela).

Background: South American Development Strategies 2000 -2013 • Brazil: ”Brazil’s rise” to influence. Informal leader of South America. South alliances and SSC. ”Soft power”. Economic strengthening. Vision: A ”shared global multipolar order” based on multilateralism. • Social orientation. Relative fiscal prudence. Strong multiplyer effects from positive terms of trade. An apreciated real exchange rate, growing current account deficits and external economic vulnerability De-industrialization and re-commodification (Dutch Disease). (Comparison with Argentina).

Background: South American Development Strategies 2000 -2013 • Peru: Commercial orientation, open regionalism and diversification. • Neoliberal strategy. Fiscal prudence. Stable economic growth. Multiplyer effects from positive Terms of trade. National Savings prudence. (Comparison with Chile and Colombia).

2. Commodity Price Volatility within Global Political Economy: Theory • The Prebisch-Singer Thesis: Deterioration in terms of trade for countries specializing in commodity production and exports. • Raúl Prebisch sees volatiligy in commodity prices as the key challenge provoking instability and external vulnerability. Prebisch’s recommendations: industrialization, diversification of exports towards industry, Southern-led alliances in global economic governance arena. • Theoretical debates on natural resources based economic development and their implications on views on appropriate development strategies • New developments in the global economy since the 1950 s (economic modernization in some developing countries; global production networks). • Nevertheless, commodity PRICE VOLATILITY and terms of trade remain relevant. Dutch Disease and commodity supercycles: the risks of de-industrialization, external economic vulnerability and very negative sequences of cumulative causation with significant impacts on economic and social development as well as politics and socio-political instability. Adjustment problems: economic and political economy aspects (as well as foreign policy/global politics impacts – GPE relevance).

3. Analysis: South American Development Strategies 2014 -2017 • Price shock affects South American economies as a whole. Export earnings and tax incomes fall – multiplyer effects on domestic demand. • Actual effects vary across countries and depend on domestic level factors and policies. • Cumulative causation. Risk of a ”vicious circle” (social and economic) that interacts with politics/foreign policy. • Potential long-term structural consequences + impacts on South America’s insertion in the GPE.

Brazil (2014 -2017) • Short-term. Major fall in exports (and imports). Severe economic downturn. Harsh fiscal adjustment. • External adjustment through weak exchange rate and reduction of imports. Huge fiscal deficits in spite of cuts due to falling revenues. Higher public debt/GDP ratio. Continued de-industrialization – continuation of commodity orientation. • Impact on politics. Neoliberal economic strategy. Impeachment. • A vicious circle with deep social, economic and political impacts. Brazil’s ”retreat” and weakening in the international system/region.

Brazil (2014 -2017) • Foreign policy moves towards a ”commercial” strategy with focus on economic openness. Major implications for South-South strategy (Africa; South America). Weakening of Brazil as an ”emerging power”: Image and material capability. Not an informal leader of South America. Weakening of South American regionalism. Greater alignment with US foreign policy. Still unclear what the implications will be for the prioritization of the BRICSalliance and the ”shared order” diplomacy. • Long-term structural consequences? – perhaps the economic impact will mainly be temporary. But, huge fiscal challenges remain and Brazil’s tendency towards re-commodification continues. A new economic upturn could potentially give new air to industry. Volatility remains relevant. Still an emerging power?

Bolivia (2014 -2017) • Short-term economic effects on growth from falling commodity prices neutralized by counter-cyclical policies. • A 6. 6 percent fiscal deficit in 2015 + borrowing from China for 11 strategic projects included in Bolivia´s 2016 -2020 National Economic and Social Development Plan. • Continued economic growth and social orientation (Vivir bien). Stable sociopolitical situation. Buffers (prudent fiscal/savings policy) give Bolivia more room of maneuver than Brazil. The level of reserves falls and foreign debt rises. • Challenge: external and fiscal adjustment (sustainability). (Comparison to Venezuela)

Bolivia (2014 -2017) • Foreign policy remains stable: Anti-colonial; anti-hegemonic – anti-US and anti-transnational empire = ”Economic liberation”. South-South Cooperation. China important. China is seen as offering help and cooperation, whereas the US is seen as interventionist and repressive. • Regionally: Weakening of ALBA and UNASUR (Comparison with Venezuela – China and Maduro/opposition; ”lender of last resort”) (US agenda).

Peru (2014 -2017) • Peru maintains robust domestic demand in spite of commodity price fall. Helps manufacturing production pick up steam. Peru is able to maintain reasonable external economic balance (higher export volumes). • Financial buffers built up during the boom years help smooth adjustment. • Foreign policy basically unaltered: Commercial in orientation, neoliberalism and diversification of trade (FTA’s). Substantial FDI in mining (China et al). (Chile harder hit by commodity price fall. Major fiscal deficits. Low economic growth) (similar FP)

4. Final comments and key debates on the current South American situation from a GPE perspective • Long term structural consequences of South America’s commodity supercycle? Global economic insertion, development models and social and political consequences? (Fragility and instability). • The future of commodity prices? : A new normal of relatively low prices: Does the Prebisch-Singer thesis still hold? Volatility will be relevant in the future, too! • What way forward for national economic development strategies?

China’s economic and political impact on South America? Positive? • Economic aspects – short term positive (own policy matters). Long term? A structural blind alley or positive potential? Cumulative causation: the case of Venezuela is extraordinarily problematic. • Political aspects: 1. Major political weakening of South American left-wing forces and their visions for the region and the world. 2. Autonomy vs. dependency and subordination? (to US and China; foreign capital). 3. Regional integration: a fragmented region. Lack of Brazilian leadership. US geopolitical position is strengthened in the region. Chinese influence on economic governance.