Eager to reverse the damage his predecessor did to Brazil’s regional ties, President Luiz Inacio Lula da Silva made his first international trip this week to neighboring Argentina, where he attended a summit of the Community of Latin American and Caribbean States, or CELAC. His aim was to smooth rocky relations with Buenos Aires and the rest of Latin America. But even before Lula had landed, even before he held his first meetings with Argentine President Alberto Fernandez and the other leaders attending the summit, a casually tucked away line in an article co-authored by Lula and Fernandez sent shockwaves.
“Two brotherly peoples are meeting again,” the two leftist leaders wrote, vowing to bring their countries together in their fight against poverty and hunger. Only further down, in the article’s 12th paragraph, did they announce their decision to move forward with a plan to create a common currency, starting with their two countries and inviting other South American countries to join. The currency doesn’t exist, but it already has a name: the sur, Spanish for “south.”
If it were to be adopted by the rest of the continent, the sur would become the world’s second-largest currency zone behind the euro, the common European currency that perhaps served as an inspiration for its name. The idea is that it would help the region ease its trade relations, making it more dynamic, less reliant on the U.S. dollar and better able to control inflation.
It’s a heady notion. But, in fact, it’s an idea whose time has not come. Not even close.
The lofty vision of economic integration clashes with the current reality. Not only are Argentina and Brazil currently in no position to merge their currencies, but the prospect of an ever-larger monetary union seems beyond far-fetched in a region roiled by profound political and economic polarization driven by fundamental ideological divergences.
It’s worth remembering that before the European Union started working on a common currency, the region already had a well-functioning, long-standing trade bloc, the European Economic Community. More importantly, European nations had developed a consensus on fundamental political philosophies and their economic corollaries. Latin America’s ideological battles are still being fought, and the political impact is tangible.
Previous efforts at regional integration have a spotty record at best. The Mercosur trade alliance of Southern Cone nations—Argentina, Brazil, Paraguay and Uruguay—has long been plagued by acrimonious disagreements, gaining a reputation as a relentlessly fractious trade bloc that has failed to produce economic integration. And Unasur, the South American regional forum spearheaded by Venezuela’s Hugo Chavez and championed by Lula in his previous stint as Brazil’s president, was mired in controversy before fading into irrelevance and gradually disintegrating.
Clearly, creating a monetary union, arguably a riskier proposition, would face tall hurdles. Acknowledging that the “surzone” is barely in its earliest stages, Argentine Economy Minister Sergio Massa called the announcement by Lula and Fernandez “the first step on a long road which Latin America must travel.”
Expanding bilateral trade between South America’s two biggest economies would bring benefits to both countries, but the risks of tying Brazil’s economy to its neighbor’s ups and downs is sure to give many Brazilians pause.
Massa said the countries need to study crucial issues, including the role of central banks, the way fiscal policies would function and other complex matters. As in Europe, the erosion of national sovereignty inherent in such a bloc is sure to become a potent political issue.
Some, like Argentine economist Fausto Spotorno, wondered if the common currency would result in a true monetary union, or simply be a subtle way of allowing Argentina to adopt Brazil’s currency, the real, an alternate version of the common practice of dollarization as a way to curb inflation.
Quashing inflation is something Argentina is keenly interested in doing, but Brazilians may have second thoughts about hitching their economic fortunes to their neighbor. After all, Argentina is known for its perennial economic drama, going in and out of crises over the decades. Inflation is currently approaching triple digits, and the country has an awkward history of sovereign debt defaults.
Expanding bilateral trade between South America’s two biggest economies would bring benefits to both countries, but the risks of tying Brazil’s economy to its neighbor’s ups and downs is sure to give many Brazilians pause.
In Argentina, too, reaction to the news was decidedly mixed. Although some praised the news, others expressed deep skepticism. The economist Martin Tetaz, a member of Congress, hailed the idea as a path for ending inflation once and for all. But Alfredo Cachanosky, a journalist with a background in economics, asked with a touch of sarcasm which of South America’s populist movements would provide backing for the new currency: that of Argentina’s Cristina Fernandez Kirchner, Bolivia’s Evo Morales or Lula himself.
The idea of developing a regional currency is not new. Back in 2019, Bolsonaro and then-Argentine President Mauricio Macri launched talks on a similar idea. The plan got as far as meetings between their finance ministers. But when word got out, the notion was summarily snuffed out by Brazil’s Central Bank, which issued a terse statement declaring, “The Central Bank of Brazil has no projects or studies for a monetary union in Argentina.” With that, the talks ended, despite Bolsonaro’s efforts to double down on the initiative.
Latin America currently faces enormous problems, from assaults on democracy and popular unrest to deepening poverty and inequality. The fanciful notion of creating a currency bloc, with the enormous amount of technical work it would entail, seems like an unnecessary distraction and definitely not a panacea.
That may be why Brazilian Finance Minister Fernando Haddad tried to take some air out of the balloon, insisting the Brazilian real is not going anywhere and that the idea is simply to facilitate trade between the two countries by finding a way around Argentina’s shortage of hard currency reserves. Buenos Aires has struggled to come up with dollars due to its recurrent economic crises. “We are trying to find a solution,” Haddad insisted, “something in common that could make commerce grow.”
In spite of Haddad’s efforts to lower expectations, the idea of creating a single currency bloc in South America does have its fans. But detractors are convinced it’s the wrong move at the wrong time for a region that has already endured too many dramatic gyrations over too many years.
Frida Ghitis is a world affairs columnist and a regular contributor to CNN and The Washington Post. Her WPR column appears every Thursday. You can follow her on Twitter at @fridaghitis.