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Inside Mexico: The Americas' three kings

By IAN CAMPBELL, UPI Chief Economics Correspondent   |   Dec. 11, 2002 at 10:46 PM
QUERETARO, Mexico, Dec. 11 (UPI) -- Coke executive, steel trade unionist, oil executive: these are their work backgrounds. The populations they preside over total 100 million, 170 million, 280 million -- altogether, 540 million of the 830 million who live in the Americas.

We Three Kings of Occident are ... It doesn't quite have the ring of the original. The Western Kings have never been in chorus.

Mexican President Vicente Fox, Brazilian President-elect Luiz Inacio Lula da Silva and U.S. President George W. Bush are the leaders of the three populous giants of the Western Hemisphere.

The three Kings of the Occident have not yet traveled the same road together. Perhaps, for everyone's sake, they should. But there are differences that divide them; mutual distrust.

Brazil is the sleeping giant of the region and latterly, as so often in the past, its sleep is troubled. The nightmare is that the country will follow its southern neighbor Argentina into economic crisis.

These aren't passing fears that disappear with the daylight. Lula, as the incoming president is known, will on Jan. 1 inherit a frail economy, one that in dollar terms was far bigger than Mexico's five years ago and is now much smaller. The giant is losing ground while it sleeps.

The economy requires wise, decisive and consistent management if it is to avoid crisis and instead improve, bringing to Brazilians the jobs and higher incomes the vast majority of them need. The question is whether Lula, long-time presidential contender of the left and finally successful, can prove a catalyst of reform and strengthening, rather than the architect of collapse.

What are Lula's priorities? They are the right ones. Improving the standard of living of Brazilians, beginning with the poor -- of whom Brazil has tens of millions. How to go about it is Lula's question. Now, on his tour to visit Bush earlier this week and Fox on Wednesday, in Mexico, he may be learning.

The United States wants to talk trade with Brazil. When Bush met Lula earlier this week, so did Robert Zoellick, the U.S. Trade Representative, and the latter held a separate meeting, too with Lula. The bait for Zoellick, a committed free trader, and for the United States is that Brazil should commit itself to the Free Trade Area of the Americas, a plan first mooted by the first President Bush to spread free trade throughout the hemisphere. Brazil has long been wary of it.

The reasons for that are various. Brazil is a big country, almost as big as the United States, and sees itself as no one's sidekick. Its distrust of the United States is strong. Concrete actions have not helped.

Brazil exports steel and didn't like the increase in U.S. steel tariffs this year. Brazil exports agricultural goods and decried the U.S. farm bill this April that put in place high subsidies for U.S. farmers over the next 10 years.

The outgoing U.S. Treasury Secretary, Paul O'Neill, spoke of loans going to South America that ended up in Swiss bank accounts. His words caused offense in Brazil.

The United States is seen in Brazil as a superpower that plays dirty and has hegemonic intentions. Outgoing President Fernando Henrique Cardoso, a modernizer in many regards and a centrist and a moderate, tended to see things that way. The propensity of his left-wing successor to do so may be all the more strong.

And yet. Fox and Lula emerged from their meeting Wednesday and said nothing. But what Fox and Mexico might be saying to Lula could be an important part of his preparations.

In a little more than a year, on Jan. 1, 2004, the North American Free Trade Agreement will be 10 years old. In Mexico there is keen debate as to whether the NAFTA's young years have been good ones.

There have been what Mexico sees as slights from the gringos: the decision (now being revised) not to admit Mexican trucks into the United States, for example, or the reluctance not to take the NAFTA further towards the formation of at least some European Union style institutions that might oversee the process of integration.

But a sensible appraisal of the NAFTA's impact on Mexico has to take account of the country's export growth, the big increase in foreign investment and the hundreds of thousands of jobs created in export industries. In the past five years, Mexico's growth has been higher than in previous years, and higher than Brazil's. Its trade accounts have been better balanced than in the past and than in Brazil. Its exchange rate and finances have been more stable than in the past and than in Brazil.

In all of these achievements, both in comparison with its past and with its South American rival, the NAFTA has played a big role. On Wednesday, Fox -- whatever his frustration with the United States over this and that and migration in particular -- must have given Lula that message.

It is a message Lula might be willing to take on board.

How can Lula avert crisis in Brazil? "My administration will be known for fiscal responsibility, respect for contracts, and control of inflation," he said on Tuesday in Washington.

But fiscal discipline has been practiced by Cardoso for eight years and yet Brazil's government debt has kept growing fast.

What Lula must do is implement still deeper reform of government finances. But that would oblige him to scythe the jobs of some of the state employees who are his strongest supporters. And so another way of revitalizing Brazil's prospects might appeal to him: a greater opening to U.S. investment and trade.

One reason for Brazil's frailty is that exports have stagnated for years, leaving the country heavily dependent on foreign capital. Economic growth, too, has been low, so the government has been obliged to increase taxes to raise revenues.

The proposed FTAA could help change that. Lula could realize that even if Brazil is wary of the might of the United States, in the burgeoning of trade in the Americas, it is always going to be South America's King.

For Mexico, too, a Brazilian commitment to an FTAA could only be good. The NAFTA was a modernizing step for Mexico, one that helped spur political change, more closely monitored elections and the end of the Partido Revolucionario Institucional's long, corrupt reign. If Brazil were to join the club, those modernizing trends would be bolstered. Freer economies, freer trade would help engender freer politics and higher growth, which is all to the benefit of Fox and Mexico's modernizers.

The potential is huge. A region which has had, by tradition, little internal trade and in which only the United States and Canada are truly prosperous could forge ahead.

Who knows where the Occident's three Kings might lead if they choose to ride together?


Inside Mexico is a weekly column in which our international economics correspondent reflects on the country in which he lives part of the time. Comments to icampbell@upi.com

© 2002 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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