To read the article, click here.
Perhaps one of the more unlikely but compelling stories to come out of South America in recent years has to do with the budding strategic relationship between Venezuela and Argentina. Together, the two countries constitute a formidable bloc that could make all the difference in defining South America's future geopolitical trajectory.
But now, Chávez is testing the revolutionary fervor of his Argentine counterpart, Cristina Fernández de Kirchner.
The Venezuelan President has set his sights on Sidor, an Argentine-owned steel plant. The firm is one of Latin America's most important steel factories and was Venezuelan state property until 1997 when it was privatized and sold to a consortium of corporations. The largest majority stakeholder is currently Argentine company Techint.
As part of his assault on the neo-liberal economic policies of the past, Chávez has long sought to "nationalize everything that was privatized" by previous Venezuelan administrations. Having already taken over the cement industry, several milk producing plants, dozens of large farms, as well as the electricity, telecommunications and petroleum industries, Chávez is now moving on to the strategically important steel sector.
On April 9th, Venezuela put its incipient alliance with Argentina to the test by announcing the government's decision to nationalize Sidor. It was the first time that Venezuela had acted to nationalize a company from an allied nation. Rubbing salt in the wound, Venezuela's Vice President Ramón Carrizalez denounced Sidor's management for its "colonizer attitude" and "barbarous exploitation" of workers. "This is a government that protects workers and will never take the side of a transnational company", Carrizalez added.
Despite Nationalization, Argentina and Venezuela Still on Track
Chávez's moves put Kirchner in a tight bind. Paolo Rocca, Techint's President, is close to the Buenos Aires government and has pleaded with Kirchner to "confront the Venezuelan government in defense of national capital." Thus far, Kirchner has been tight lipped about the imbroglio, which has made other Argentine investors jittery. In the wake of the nationalization, some Argentine firms in Venezuela said they would "think a little more" and called the Sidor nationalization "an alarm."
However, Rocca is unlikely to persuade Kirchner to take tough action against Venezuela. Fundamentally there is just too much at stake in the relationship for either country to sever ties. The Argentine President herself has admitted that Venezuela has been an important ally, helping Argentina "at a time when no one else did." If it weren't for Chávez, who has bought more than $5 billion in Argentine debt in the last two years, Argentina might still be struggling to cope with economic troubles associated with the financial meltdown of 2001.
What's more, energy strapped Argentina badly needs fuel and Chávez has generously agreed to barter oil for meat and ships. While in Buenos Aires researching my new book, Revolution! South America and the Rise of the New Left (Palgrave-Macmillan), I interviewed Cristian Folgar, the Undersecretary of Fuel. Speaking with him at his office off the Plaza de Mayo, Folgar explained that energy links between Venezuela's state oil company PDVSA and the Argentine government were quite solid. Indeed, the Venezuelan firm now has an office in Buenos Aires.
"Today," he remarked, "the president of PDVSA Argentina was here asking for information about Argentine gas. This month, I spent 10 days in Caracas. I have made 15 trips to Caracas in total."
Chávez's energy benevolence has paved the way for closer economic integration: currently Venezuela and Argentina barter and trade everything from ships to oil to cattle to agricultural products. According to Folgar, energy integration has been "fundamental" in enhancing Argentine-Venezuelan ties. "Venezuelan and Argentine businessmen view each other as potential partners in many areas," he remarked, "which was not the case before."
Radical Hotel Inspires Venezuelans
Even as Venezuela and Argentina encourage business ties, workers in the two countries have also begun to coordinate their efforts. Venezuelan laborers have been inspired by their counterparts in Argentina, who took over companies following the 2001 economic collapse. Currently there are some 250 "recuperated" enterprises in Argentina, providing jobs to more than 10,000 workers.
Encouraged by the Argentine example, Venezuela has hosted conferences dealing with the future of worker-owned firms in South America. Argentine experts have participated in the conferences, providing crucial expertise to Venezuela.
An interesting example of the reciprocal exchanges between Argentine and Venezuelan workers is Hotel Bauen, located next to the headquarters of the Communist Party along a busy Buenos Aires thoroughfare. A cooperatively-owned, three-star hotel, Bauen has served as a political symbol to many Venezuelan workers. Indeed, some Bauen employees have even traveled to Venezuela in order to speak about their experience in setting up a cooperative system.
Argentines' Changed Political Consciousness
Because of these increasingly more frequent day-to-day exchanges between Venezuelans and Argentines, it would prove politically problematic for Kirchner to suddenly switch gears and reduce her country's ties to Chávez. The Venezuelan leader continues to remain popular amongst Argentina's radicalized poor. Kirchner, who has been busily trying to build up her populist credentials, and who holds mass rallies denouncing the agro-export elite in her country, cannot afford to alienate this key constituency.
For many, Chávez's anti-imperialist rhetoric resonates because of Argentina's unfortunate experience with the International Monetary Fund and neo-liberal economic policies backed by Washington. Psychologically, the country has changed immensely from the go-go free market years of the Carlos Menem administration. Politicians who fail to recognize the new underlying reality do so at their own peril.
Therefore, notwithstanding the recent buffeting, the Venezuela-Argentina alliance looks like it will continue on track. What's more, if the bloc manages to attract smaller countries such as Ecuador and Paraguay, it could prove to be a formidable force indeed. Washington may find the consolidation of this left bloc unappealing, but there is little that Beltway foreign policymakers can do at this point to halt the rising political tide in South America.
Cristina Fernández de Kirchner, Argentina’s new president, must have heaved a huge sigh of relief. Though politicians feared that protests could mar the arrival of the Olympic torch in Buenos Aires, the day passed uneventfully enough. Athletes ran the torch through the city streets as Chinese guards ran in formation alongside. The torch, which has toured the world ahead of the Olympic Games in Beijing in August, has been a magnet for protests over China policies. The Chinese leadership has fallen under international criticism for cracking down on unrest in Tibet and for propping up Sudan.
As the torch headed to Argentina on its ongoing tour, activists protesting against China’s rule of Tibet pledged to hold peaceful demonstrations. Jorge Carcavallo, a member of Argentina’s Free Tibet group, interrupted a press conference about the torch’s visit to warn of upcoming protests. When the torch arrived in Buenos Aires from San Francisco, authorities quickly hustled the torch off the plane and, in what was now rapidly becoming a comic odyssey, canceled a planned photo opportunity on the tarmac. The Olympic flame, in an ornately decorated lantern, was protected by Chinese guards who jumped onto a bus and rushed away to a secret location. The Chinese guard was escorted by wailing police cars and an ambulance. Local security officials wouldn’t disclose where the vehicle was headed. On the day of the torch’s tour through the streets of Buenos Aires local authorities braced for the worst, deploying some 1,200 police officers and 3,000 traffic cops. Though demonstrations were scattered, the police penned in protesters within fences along the 8_-mile relay route.
Behind the headlines and all the melodrama surrounding the torch, however, there’s a more significant story. For years, Argentina has been courting China diplomatically and has pointedly gone out of its way not to criticize the Asian Tiger in regard to its appalling human rights record. Kirchner is interested in maintaining important economic ties with the Asian Tiger, and in this sense the President could ill afford a public relations nightmare that might put the China relationship in danger.
On the other hand however, China ties could pose a thorny political problem for Kirchner and other South American leaders in the long term. Increasingly, Argentina is becoming entwined with Beijing and this has only served to intensify social tensions in the country.
Argentina Embarks on a New Trajectory
To understand why Argentina invested so much in its China relationship, you have to go back to 2001. In that year, the once prosperous South American nation faced economic ruin after confronting a catastrophic financial collapse. The Argentine political class had followed globalization’s dictates by dismantling protectionist trade and business regulations and embarking on an ambitious wave of privatizations. During the Asian economic crisis, a huge outflow of capital led to a depression and financial panic.
Although Argentina had experienced a number of economic crises over the years, this one was one was without precedent in severity and human consequences: overnight the currency lost two-thirds of its value and banks were closed so that ordinary Argentines could not access their funds. In December 2001, amidst bloody riots, President Fernando de la Rúa was forced to resign after hardly eighteen months in office. Parts of the majestic Congress building in downtown Buenos Aires were torched by angry protesters.
Over the last five years however, Argentina has undergone a remarkable economic recovery, partly due to a drastic devaluation of the currency by two-thirds. The currency devaluation suddenly made Argentina’s exports highly competitive on the world market.
The government’s move coincided with dramatic economic developments half a world away. In China, the government was facing a dilemma: the country’s farm output had reached its limit, and massive rural to urban migration was creating an insatiable demand for more soy. China simply did not have the necessary land or water to produce more of the crop.
Argentina to the Rescue!
As it turns out, Argentina, with its fertile soil and favorable climate, was well situated to produce soy. In conjunction with my new book, Revolution! South America and the Rise of the New Left (Palgrave-Macmillan, 2008), I interviewed Gonzalo Sánchez Paz, a lecturer in international affairs at George Washington University and an expert on South America’s ties to Asia. "You cannot understand the miraculous Argentine recovery after the financial crisis of December 2001 without considering the boom in soy exports to China," he told me.
In an effort to curb inflationary pressures, former President Néstor Kirchner placed export caps on beef, thus flooding the local market with meat. Argentines, who are passionate about their beef, consuming 154 pounds of meat per capita per year, and who hold Sunday barbecues with a religious fervor, embraced the new measures as prices were kepT low (incoming President Cristina Kirchner has pledged to maintain a high export tax that makes outbound beef too costly for many foreign buyers).
Simultaneously, many cattle ranchers were tempted to switch over to soy owing to increased market prices and the government’s export caps on meat. Argentina, which was the world’s biggest beef exporter until the 1950s, now went to fourth in U.S. Department of Agriculture rankings, behind Brazil, Australia and India.
Some experts say Argentine soybean farming is currently three times more profitable than cattle ranching. Indeed, the trend against ranching is so powerful that today, remarkably, half of all cultivated farmland in Argentina is dedicated to soy. The explosion in production has been aided by the fact that soybeans need just eight months to reach harvest, far less than the 2-3 years needed to raise a cattle herd.
Clearly, farmers aren’t complaining: they’re making a killing on their new soybean crop.
Soy Has Its Consequences
Argentina, a land of vast, fertile plains, has benefited hugely from high international prices for commodities. But the country is divided over how best to distribute windfall profits from soy. Though China trade has represented an economic boon, Argentina’s relationship to the Asian Tiger has exacerbated social tensions. The soy trade has encouraged the rise of an export elite in Argentina which has become an important political actor in its own right.
Determined to check the growing power of the farmers, and strapped for cash, the regime recently raised export taxes on soybeans from 35% to 45%. The move, Kirchner said, would help to control rising inflation on domestic food goods. What’s more, the policy would serve to redistribute wealth in a country where nearly a quarter of the population lives in poverty.
The soy farmers however went on strike, presenting Cristina with her first political crisis as Argentina’s new President. Blockading roads in protest of the tax increases, the farmers strangled the flow of farm goods to cities and caused acute shortages of meat, milk and fresh produce across the country.
At a political rally attended by 20,000 supporters including trade unionists, Kirchner railed against the soy farmers. "Is it good that highways are cut so that food cannot be transported to market?" she asked. "Don’t do more harm to the people, lift the roadblocks so Argentines can get food," the President said.
Though the farmers recently agreed to end the road blockades, they have stated that they will resume the strike if the government refuses to rescind the tax measures. The current peace between the parties seems tenuous, as both the farmers and government have failed to reach substantive agreement during negotiations.
Historically, the U.S. sponsored local economic elites and multinational business in South America in an effort to secure raw resources. Now that the U.S. has lost some of its former position, China has stepped in to fill this familiar role. In order to keep growing at high rates, China needs access not only to food but to iron, oil, copper, and gas. Usually China is willing to help with infrastructure projects such as ports or railroads but only if this helps to facilitate the transport of raw materials.
Across the region, countries strain to satisfy insatiable Chinese demand.
From Argentina, China imports soybeans, crude oil, leather and steel. In Bolivia, China will invest $1.5 billion in the onshore oil and gas sector. China is also interested in developing the country’s largest tin mine, Huanuni. Meanwhile China has imported millions of tons of oil and iron ore from Brazil and has signed a deal to help construct a major natural gas pipeline. In Chile, China will set up a joint venture with the state copper company, Codelco. In Ecuador, a Chinese-led consortium bought oil and pipeline assets for $1.4 billion. In Venezuela, China has invested millions in the oil sector.
As evidenced by the peaceful and largely uneventful passage of the torch in Buenos Aires, China is not perceived as a major exploitative presence.
This could change with time, however.
China’s economic and development vision for the region, designed to serve its own growing needs, has already exacerbated class tensions in Argentina and could give rise to social conflict in neighboring countries as well.