While the Ukraine crisis has made headlines around the world in the past weeks, instability in Venezuela and Argentina also has an impact on Latin America’s economies – starting with Brazil.
The ongoing crisis in Ukraine has captured global headlines in the past weeks. While it may seem far off from Latin America, the crisis could have effects on the region’s economies. “The Ukrainian crisis certainly has the potential to create a tremendous impact in emerging markets and in Brazil,” said Christopher Garman, a director of Eurasia, the Washington, DC political risk consultancy at a conference call held by Go Associados inSão Paulo. Garman and other speakers said emerging markets, and Brazil in particular, have much to lose from a deterioration of the Ukrainian crisis and a possible Russian military intervention in the eastern part of the former Soviet republic.The speakers also touched on crises closer to home – including increasing instability in Venezuela and Argentina.
Tension has already risen in the region following Russia’s increased military presence in the autonomous republic of Crimea (a Black Sea peninsula which is mostly populated by Russians, but is officially part of Ukraine), after protesters in the Ukrainian capital of Kiev removed the country’s pro-Russian president and a pro-European government was installed. “This crisis represents the largest geopolitical risk we have had in a long time,” said Garman. Eurasia said the probability of a Russian military intervention in Eastern Ukraine has now risen to 40 percent. Actual fighting will put the energy market under strain, as the region is rich in oil and gas (Ukraine also hosts a large network of gas pipelines).
But it is the soft commodity markets that may suffer the biggest blow. Ukraine is a large producer of wheat. “A military intervention would have a tremendous impact on Ukrainian grain exports.” said Garman.A negative impact on the Ukrainian harvest may push up the price of wheat, according to Fabio Silveira, director of economic research at Go Associados. “Brazil is a large wheat importer. It is already facing serious trade balance issues. This would put more pressure on the price of bread and inflation. There would be a medium term impact,” he said.
Meat is another casualty of the Ukrainian crisis.“We do export meat to Ukraine, especially pork. This trade fell drastically this year due to the current crisis,” said EwaldoAlves, a foreign trade academic from the FundaçãoGetulio Vargas in São Paulo. Brazilian exports of pork meat, which have been declining since October, suffered a 95 percent drop in volume in January, compared to the previous year.
Ukraine, not Venezuela
Closer to home, Brazil has also been dealing with the impact of political and financial instability in Venezuela and in Argentina, its main Mercosur partners that are also major importers of its manufactured goods. The negative impact on the trade balance may amount to $5 billion this year if the crises are not resolved, according to the Brazilian association of foreign trade (AEB).
Meanwhile, President DilmaRousseff made it clear that the scale of the crisis in Venezuela, just one year after Hugo Chávez’ death, is much more limited than the crisis in Eastern Europe. “As far as Venezuela is concerned, you do not have the same situation as in Ukraine,” she said in Brussels late last month, after a meeting with top European Union officials.
While praising dialogue instead of confrontation, Brazil’s role in trying to appease the Venezuelans has been discreet.
“The Brazilian government has been praying for the set-up of a dialogue between the opposition and the government, which are two blocks of similar size. If this does not happen, there is a risk of a disastrous clash at the northern border. Such a wish was expressed to the Venezuelan foreign minister, ElíasJaua, during his recent visit to Brasília,” said Clóvis Rossi, in his Folha de São Paulo column. He argued that the Union of South American Nations (Unasur) could broker some deal, as it did in 2008 in Bolivia with the help of the then Brazilian president Luiz Inácio Lula da Silva.“Unasur would have to tell the radicals from the Venezuelan opposition camp that there is not any remote chance to repeatwhat happened in Ukraine, a country where street protesters toppled the President (Yanukovitch),” Rossi added.