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The new geopolitics and geoeconomics in Latin America – A column by Ingo Plöger

Ingo Plöger | President of CEAL - Brazilian Chapter

If the pandemic had already shifted the priorities of world geopolitics, the war in Ukraine has put the world back to warlike geopolitics. Neighboring Europe reinstates a cold war and post-World War II mindset in its darkest memories. The US is called to reassume a predominant role and changes its position in NATO. The new factor in these warlike geopolitics is China, which initially favors Russia because of its interests in Taiwan. Already in the UN resolution, it takes a step back, staying in a neutral position like India. Russia, as a player in action, made a series of risk calculations to seek its advantage in a situation of global economic post-pandemic fragility, added to the assessment of US fragility as it leaves Afghanistan, a post-Merkel Europe and amid Brexit, and a China that favors it.

However, we know from history that going into a war is an action of perception and reality, and often the outcome does not resemble the imagination that motivated going into it. Strategic, calculating, and deeply aware of the reality of Ukraine because of their common history, Russia advances into territory that in part favors it and is in part deeply antagonistic, with a much superior military force to that of Ukraine. Its first steps in Crimea, and now in Ukrainian states that favor it, experienced cautiously the reaction of the West, successively posing greater threats, including nuclear ones, as it advanced into the territory.

This strategy seems to have logic and success. But what Putin may not have calculated is the reaction of the Ukrainian people in defense of their homeland and the international solidarity towards Ukraine. With each passing day, and the failure to instate a domination of the territory, a joint international solidarity is formed, first against the figure of Putin that then spreads to Russia. As I write, I realize that a “Russian phobia” is established, which becomes an obsession, in people, where everything that could be Russian is rejected. This gigantic loss of Putin’s credibility not only leads to economic retaliation, but also results in companies that are operating in Russia reducing or closing activities overnight.

What we are witnessing is a gigantic loss of Putin’s reputation, which is spreading over the entire Russian nation, with consequences that are not yet foreseeable. Companies affected by this situation reduce their operations in Russian territory, leaving however the doors open for a possible return.

War geopolitics has direct, immediate and very severe effects on geoeconomics.

China is not interested in drawing out the war if it affects its geoeconomic interests. Its alliance with Russia, on the one hand, is of interest to the geopolitics of war. On the other hand, China is beginning to realize that the world’s opinion is turning against Russia and it could strongly affect its reputation in this alliance. If public opinion turns against it, because of this alliance, market preference boycotts could also affect it substantially. It’s like the well-known hug to the drowned – you go under with them if you are not careful.

Clearly, China’s economic strength is much greater and more complex than Russia’s, but in the face of a shattered reputation, China has much more to lose. This evolution is happening in fractions of days, very quickly, and China realizes this. In the communication battle, Russia’s reputation is being lost. We have no idea how we will get out of this war, but certainly, the price to be paid for the lives lost, for the devastated country, and for the shattered reputation of Putin, who unjustifiably drags Russia and its people with him, will be too high.

Latin America, in turn, is far from the geopolitics of war, and it assists and participates in its development politically. The participation of democratic nations in our continent is notable, regardless of whether they are rightwing or leftwing governments that voted against the Russian invasion with weight at the UN. It is an attitude worth being recorded, which shows that despite our ideological differences, the universal rights of State’s autonomy, freedom and democracy are untouchable values. But the geopolitics of war leave strong marks in our countries’ new geoeconomics.

The geoeconomy born from these warlike geopolitics has its strongest impact on energy and food security. Along with the huge expenditures of the countries involved in rearming themselves, world inflation will increase even more than in the post-pandemic time. Affected countries in the global supply chain will redefine their nationalization strategies, now called “nearshoring”. Latin America, which is coming out of the pandemic richer and poorer at the same time, now has the brutal increase and acceleration of these factors, whose most severe impacts will be in the social and business area, to its disadvantage. In the social area, poverty will be even greater due to the transfer of costs to the prices of essentials. In business, supply shortages will further disrupt global production chains, increasing prices in general. However, similar to what we see for 2021, the economic results will not be as bad in Latin America as they will be in Europe. This imbalance between poverty and wealth will certainly increase in 2022 and may continue depending on the outcome of the war.

Far from the war conflicts, Latin America can naturally become a “safe harbor” for investments, where “nearshoring” becomes “safeshoring”.

Strategic sectors such as energy, food, and natural resources make up a set of factors of very competitive advantages in these times.

Our biggest challenge is the lack of Latin American governments’ and economists’ preparation in leadership to face this situation of the New Geoeconomy of exception. Liberals maintain their stance of non-intervention in the economy, and social democrats and socialists want the state to assume the distributive role. They do not understand that in an state of emergency, temporary high-impact measures will have to be taken, aiming at the protection of the citizen and the State. Congresses and the Executive and Judicial Branches need to join forces in the temporary nature of actions; that is, security strategies, on the one hand, and situational adaptation, are the order of the day.

It is the moment when strategic agreements need to be signed, alliances promoted and synergies taken advantage of. One example is the European Union and Mercosur Agreement, where action must be taken. In these extreme circumstances, unity must precisely revolve around what we understand as a Nation and as a Union, when referring to our commitments to our neighbors and international allies.

In the medium and long terms, the geoeconomics of a democratic, free and open continent, whose calling is to freedom, democracy and human rights, the potential of bioeconomics, energy, food, sustainable natural resources, and in the high acceptance for digitization, lies in America Latina as “The Option” for the world.

If, as we continue to support the Ukrainian people in their resilience for peace and freedom, we also open our arms to our less fortunate brothers and neighbors, we will be building a continent of prosperity and peace for all.

 

Ingo Plöger is a Brazilian Entrepreneur, President of CEAL Brazilian Chapter

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