Payment overdue: Can Mercosur make Venezuela pay?

Brazil may have wanted Venezuela in the South American trade bloc to protect its companies. But will it work?

Ariana Cubillos/AP/File
In this Oct. 2, 2013 file photo, Venezuela's President Nicolas Maduro waves during a visit to the Bolivarian National Guard command in Caracas, Venezuela.

• A version of this post ran on the author's blog, bloggingsbyboz.com. The views expressed are the author's own.

In December 2011 I wrote about Mercosur's economic rules and how they could apply to Venezuela. My analysis was that Brazil wanted Venezuela in Mercosur because it would boost trade and provide legal protections to Brazilian companies working, investing, and trading with Venezuela. The big question was whether Venezuela would follow Mercosur's rules when push came to shove.

The first significant test is now occurring. Venezuelan companies and the Venezuelan government are late on payments to Brazilian companies, mostly companies that are exporting food to Venezuela. In some cases, payments are up to four months late. (Folha, El Universal) There have been several meetings with top Brazilian officials trying to get the Venezuelan government to release the dollars necessary to pay for the food (because no smart Brazilian company will accept Bolivars these days).

Written into Mercosur's rules are various clauses that should provide legal protection to these Brazilian companies. Venezuela, with its significant shortages of food and major currency problems, wants Brazil to ignore the late payments and keep the food flowing as a matter of regional solidarity.
 
There are no indications yet that Brazilian companies are cutting back their trade with Venezuela, in spite of the late payment problem. Brazilian companies appear convinced that the Rousseff government will successfully pressure President Maduro to pay up the money that is owed.
 
This is going to be a significant test case for Mercosur. If Venezuela fails to pay Brazilian companies, it will make a mockery of the economic union and raise questions about whether the group's rules are worth the paper they are written on. If Brazil can make Venezuela pay, then it shows that Brazil's influence and ability to use Mercosur as a multilateral platform to win regional economic benefits.

James Bosworth is a freelance writer and consultant based in Managua, Nicaragua, who runs Bloggings by Boz.

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