In late January, economists and market analysts alike were stunned to hear the presidents of Argentina and Brazil announce that their governments would study the feasibility of a potential common currency — the so-called sur.
No doubt, the idea seemed puzzling. Argentina’s inflation is currently running above 100 percent, and the country has supplemented the peso with a dozen other semi-official currencies as it grapples with a dearth of foreign reserves. Brazil, for its part, is faring a bit better, but in his first year President Luiz Inácio Lula da Silva has been busy juggling a hostile Congress on everything from tax reform to passing a budget.
And yet there is precedent for such a move. In 1987, the newly democratized neighbors discussed creating a common currency, then called the gaucho. The idea was later shelved, but the dialogue between Brasilia and Buenos Aires continued into the next decade, eventually leading to the creation of a trade bloc with neighboring Paraguay and Uruguay in 1991.
The resulting regional organization, Mercosur, encompasses more than 270 million people and a combined gross domestic product (GDP) of more than USD 2 trillion, making it the largest trading bloc in the region and one of the world’s top ten economies. In the mosaic of Latin American regional organizations, the bloc has been a consistent presence for more than 30 years — yet it has been in limbo for the past decade.
Part of the story is limited progress on integration. Early treaties created a customs union characterized by a common external tariff and a harmonization of trade policies designed to make the bloc more competitive on the world stage.
But the free movement of goods, capital, and labor among member countries remains limited, and a lack of dynamism in the bloc’s leadership — along with contrasting development models — has led to the persistence of some intraregional disputes.
Even successes such as common...
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