Latin America: On the road to neo-extractivism?

Alejandro Nadal

Last week Argentina’s president Cristina Kirchner nationalized 51% of the Spanish (majority) owned oil company Repsol-YPF. Madrid threatened reprisals but Kirchner reaffirmed her decision with nationalistic undertones. Many in Latin America saw the Argentinean resolve as an example of the region’s quest to recover control over its natural resources.

Progressive movements interpreted this act as proof that winds of change in Latin America are definitely moving away from the dark history of neoliberalism. But one question remains in the horizon: is Latin America returning to a form of extractivism?

Extractivism represents the time of enclaves, appalling social and labor conditions and the submission of central governments to the power of big international firms. It epitomizes the unfair and asymmetric integration of Latin America to the world economy at the end of the 19th century. The import substitution development strategy implemented between 1940 and 1978 was designed to escape from this trap. The debt crisis detonated in 1982 and the neoliberal policy package implemented in many countries in the region destroyed the industrial tissue built during the import substitution strategy.

Once neoliberalism dominated most of Latin America’s economies extractivism returned with a vengeance. The wave of privatizations handed control of oil exploitation and mining ventures to foreign companies. A study by Schlesinger shows how the withdrawal of support for small-scale agriculture and financial liberalization opened vast expanses of land for commercial (monoculture) agricultural production destined for the international markets.

Neoliberalism failed to deliver healthy economic change and a series of crises allowed for a dramatic political changes. First came Venezuela, where Hugo Chávez won the presidential elections in 1999. This was followed by the electoral victories of Néstor Kirchner and Lula in 2003, Evo Morales in Bolivia (2006) and Rafael Correa in Ecuador (2007). It is important to remember they were all voted into power through free elections.

Control over natural resources became a matter of high priority because they were the source of fiscal revenues. Although regaining control over natural resources was frequently presented as part of a nationalistic project, it was more the pragmatic response to a situation in which the exploitation of natural resource projects provided both a way to close the currency gap and to supply badly needed fiscal resources. It is not surprising that these new governments engaged in promoting what soon became known as neo-extractivism.

The thrust towards extractivism is marked by important contradictions. Following the wave of privatizations and deregulation of the mining sectors under neoliberalism, the new governments did not proceed to recover control through abrupt nationalizations. In most cases they renegotiated the terms of contracts and concessions with the multinational firms in order to raise fiscal revenues. This adaptive strategy maintained marketing channels and avoided a direct clash with the home countries of these companies.

Nationalist rhetoric notwithstanding, neo-extractivism has not changed the particular insertion of these countries in the global economy. Except for Venezuela and Argentina, these countries have not questioned the basic institutional framework provided by the WTO and financial and trade liberalization remain the key guideposts of their macroeconomic policy package. Argentina has already reformed the law of its central bank in order to recover control over its monetary policy.

Under neo-extractivism the additional revenues have been used to boost expenditures in health, education, housing and to increase minimum wages and poverty alleviation programs. This has provided social and political legitimacy for the new governments. But it also may deepen the dependency of these new governments’ addiction to neo-extractivism, with greater pressure to increase productivity in order to maximize output.

One big question concerns the sustainability of this flow of resources. Clearly it remains subject to the duration of the economic cycle associated with prevailing high commodity prices. When that cycle expires, the boom will give way to a phase of depressed prices and the fiscal revenues will disappear. In addition, environmental collapse may also bring about the abrupt termination of these revenues. In this new context, open pit mining, intense oil production, timber extraction and monoculture commercial agriculture on a vast scale are all leaving an ugly scar on the environment. This could hamper future alternative development strategies. The study by Cibils underlines this in the case of transgenic soybean production in Argentina’s pampa.

Neo-extractivism is replete with contradictions. Ecuador remains a dollarized economy and this is putting enormous pressure on its natural resources. Although Correa has announced its decisions not to develop the oil fields in Yasuní, his government remains committed to the promotion of mega-mining projects. With all its caveats, neo-extractivism is better than its cousin under neoliberalism. After all, we still have the example of Mexico, an economy where extractivism shows up in its fiscal revenues, but where social expenditures remain dangerously low.

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4 Responses to “Latin America: On the road to neo-extractivism?”

  1. Matías Vernengo says:

    Hi Alejandro. A fewof things that I think it’s important to note. First, in the case of YPF the objective and the possibilities are associated to a reduction of the energy constraint. There is little chance that Argentina will become an exporter of oil, like Venezuela. Reprimarization or extractivism in Argentina is connected to the agro-business, but here too it’s important to note differences and nuances. In fact, this study (in Spanish by Andrés Tavosnanska and Germán Herrera, shows that industrial growth was significant in Argentina after 2002, and it was not associated to industries connected to the primary sector, it allowed for significant industrial employment recovery, and even in the period with a more competitive exchange rate was unable to decrease the import share of local industrial production. In other words, that the macro policy needs to be complemented by industrial policy to sustain ISI (something I have defended here in the blog). This could mean not only less dependency on commodity exports (something to some extent done in Argentina), but also come with a more sustainable approach. Finally, even though Brazilian monetary policy remains a sore spot, I’m not sure you can say that Brazil has accepted the WTO approach to international trade.

  2. Hi Matias. Thanks for bringing up the issue about industrial policy. There is no doubt that in order to prevent falling into a low-productivity trap of natural resource exports we need to move back into the realm of industrial policy. I know there are signs that Argentina may be starting to move in that direction. It will take some time to reverse the destructive effects of neoliberalism on the industrial base and I realize it would be unfair to ask for immediate results. The study by Herrera and Tavosnanska shows how the pattern for manufacturing industries has been evolving and confirms the fact that the primary sectors are still dominant. They show how the composition of exports in 2003-2007 exhibits very small variations with respect to 1998. In addition, the most significant change in the past decade is related to the expansion of exports of basic industrial products (oil refining and basic metals). Exports from the automotive industry are heavily marked by the Mercosur framework and are intimately related to intrafirm trade. As for Brazil, I remain unconvinced that this country’s experience (for example, in pharmaceuticals, aircraft, steel) implies it is challenging the core of the WTO regime, and its experience with capital controls notwithstanding, I don’t think it is challenging the tenets of financial liberalization (although it shows Brazilia is not passive). I am more worried about trends like land grabbing in the Mercosur countries as described in the 2011 FAO study, where Argentina and Brazil are key countries in this process (see Dinamica del mercado de la tierra en America Latina y el Caribe. Santiago: FAO),

  3. “Extractive” is now a pejorative term used to criticize legitimate economic development:

  4. […] this sense, a central category for us in LA is: Neo-extractivism, a term that refers to the over-exploitation of finite natural resources. It doesn’t only […]