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EU-Latin America: Inter-regional investment dynamics

 

by Ricardo Migueis
18/07/2004

 

A new era in inter-regional investment dynamics and a new a priority for the 2007-2013 community support framework have been launched. After the implementation of the Plan Real in 1994, providing the needed macroeconomic stability to Brazilian government, the same trend is taking place in Europe. This economic recovery means hope and intra-mercosulian trade flows.

Portuguese – Brazilian relations in the context of the European Union and the Common Market of the South (Mercosul)

The Lisbon Strategy has just been identified as the source of main priorities for the 2007-2013 community support framework. For a small country such as Portugal, regarded by the latest study on creativity and economic growth as full of potential but currently very far from the epicenter of european competitiveness this is of the most relevant nature. Moreover, in a recently enlarged europe, the portuguese must build up strategies to increase competitiveness levels never disregarding social justice.

This article deals with one specific strategy to achieve this aim : the internationalisation of companies as a means to get more and better innovative practices, thus, higher competitiveness. Furthermore, how can inter-regional investments help a small country like Portugal be actively within the European construction project ? Portuguese-brazilian relations are a particularly relevant case-study and we, at the Institute for Strategic and International Studies (IEEI) have been developing a project about it for a year now. Some introductory ideas.

Free trade and generally more open markets where a marking characterisitic of the previous two decades and were clearly favourable to international economic relations, as illustrated by the portuguese-brazilian investment dynamics. During this period of time, the political conditions for the internationalisation of both economies emerged and consolidated. The need for foreign investment that boosted development and the growth of the brazilian economy led this country’s government to adopt an export-oriented and investment attraction economic strategy.

This became possible after the implementation of the Plan Real in 1994, ending the infalcionist spiral and providing the needed macroeconomic stability. This process took place within a framework of strucural reforms based on commercial openness, financial liberalisation and privatisations, deeply affecting the nature and structures underpining distinct sector of society.

Meanwhile, in Europe, the same dynamics were taking place, even if in different scales. Profound transformations occurred in the european society, deeply impacting the portuguese society in all its economic, political and social fronts. The basis of so profound transformations are, of course, globalisation, but also the fall of the soviet empire and the deepening trend of european integration. The latter became particularly relevant to the countries that are part of today’s European Union.

In this way, in Portugal, the spaces of subsistence and autoconsumption disapeared in the more wider national, and then European, context. During the last to decades, Portugal overcame the biggest regional development differences within its own territory (even though, these still are important barriers to the country’s development), social, territorial and economic cohesion incresased. Women became part of the active population and from an emmigration trend, passed on to an immigration one. Portugal was on the frontstage of European Union’s initiatives, specifically those of the EMU – European Monetary Union.

Modernisation of economy and society, the creation of democratic institutions, just like in Brazil, did not avoid increasing social inequalities, justifying the argument that equity in income redistribution does not solely depend on the development stage but on the convergence of economic policies and social criteria, within a democratic political framework.

The 1990s experience has shown that the globalisation of the financial system, as well as the spread of export-oriented growth strategies, led to increased volatility of national economies to significant financial crisis on the other side of the globe. The economic growth period experienced in Brazil untill 1997 was interrupted, Mercosul’s deepening and consolidation also suffered a severe blowback and the devaluation of the brazilian currency, the Real, in 1999, officialized with facts supported by numbers, the already difficult task that the latin american nations of the southern cone were taking upfront. However, if the intra-mercosul trade fell dramatically, inter-regional investments between european and mercosulian countries remained increasing, as was the case with the portuguese-brazilian flow.

Argentinian and brazilian recent economic recovery means hope and some intra-mercosulian trade flows to increase. This is so particularly if :

a) brazilian and argentinian governments demonstrate a pragmatic political will towards its construction ; b) if the economies of the two coutries converge into a plan of economic coordination, taking advantage of the present moment of exchange-rate parity.

Competitiveness reinforcement of a specific region also depends on its capacity to act within the international financial architecture. The emergence of regional construction projects has augmented competitiveness within regional spheres due to increased economic flows and their capacity to transform local in global markets “without pre-warning”. In this way, both Mercosul and the EU, as wannabe global players cannot deny or turn their back to the internationalisation of their economies, nor can their membres confine their internationalisation to their regional frontiers. The proposed model is one of integration and orchestration of knowledge and competencies spread around the world. On par with a needed effort to attract strategic direct investiment (which should, in turn, lead to the endogenisation of technology, innovation, research and development), internationalisation is crucial. Only this way it will be possible to complement and overcome failures in the internal market and projecting, integrating and promoting the image and the national product, opening doors and creating international competitiveness factors.

It is, however, indispensable to understand that in both Mercosul and the EU, or even other regional groups, the dynamics of financial innovations overtook the dynamic development of techonological innovation and assimilation. We need to invert this trend. Such as the painfull neoliberal experiences in latin american taught us about the dangers of purely economic views of development, we have to recall this and integrate this lesson about social priorities with a particular attention over the quality of investment. Economic and environmental sustentability, resource redistribution are compatible with better competitiveness levels, all this in parallel with an increasing multilateralised global economy and political power.

As a strong contribution to better living standards, the Lisbon Strategy was developed and presented during the portuguese presidency in 2000. The first measures for its implementation within european borders, based on the so-called Open Method of Coordination, were then started. Recently this strategy has received the biggest contribution it could have received : it became the priority for the 2007-2013 community support framework.

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