Commercial and physical trade deficits in South America – an

argument for post-extractivism

P. Samaniego, M.C. Vallejo & J. Martínez-Alier (Flacso, Quito, 2015)

Spanish version: http://www.flacsoandes.edu.ec/agora/deficits-comerciales-y-deficits-fisicos-en-sudamerica

Summary

• This article (sent to Ecological Economics) analyses the Physical Trade Balances (PTB) of five South American economies: Argentina, Brazil, Colombia, Ecuador and Peru. Here we give only some data.• Both exports and imports (measured in tonnes) increased but exports were

consistently much larger than imports. • Such large Physical Trade Deficits (PTD) persisted in the 1990s and 2000s

despite the fact that export prices of primary goods improved. By 2013-14, export prices declined and the exports could no longer pay for imports. Countries started to show commercial deficits (in money terms). Our general argument holds for all countries and it is clearly opposed the enthusiasm that was generated by the improved terms of trade in South America at the beginning of the 21st century.

• There has been a structurally persistent and unfavourable historical situation of negative terms of trade (in which one tonne of imports is at least two or three times more expensive than one tonne of exports). This reflects the structural need of rich industrial areas in the world to get relative cheap inputs of energy and materials (Hornborg, 1998). • Although this situation was slightly alleviated in the 1990s and 2000s,

boom years for primary goods, the trade conditions are once again deteriorating further. The degree of deterioration depends partly on the composition of the basket of goods that each country sells abroad.• Because commercial trade deficits lead to current account deficits, it is

now necessary for South America countries to restrict imports, or seek external financing or use the international reserves accumulated during the boom period while these last. In any case, there is an incentive to produce additional exports of raw materials to pay down debts or fortify external positions, further causing resource depletion, environmental pollution and increasing socio-environmental conflicts.

There were periods of a favourable trend in the terms of trade between 1990 and 2012, despite a persistent structural difference between the monetary value of each imported and exported tonne.• For example, in the case of Ecuador, the price of one tonne of imported goods

was almost three times higher than the price of an exported tonne in 1990. The peak of this imbalance was reached in 1993, when the price of each imported tonne was six times higher than that of each exported tonne; in 2012, the export price of one tonne was approximately half that of one imported tonne.

• In Peru, in 2012, the price of each exported tonne was 80% of each imported tonne, although this must have fallen in 2013 and 2014 due to decreases in the price of copper and gold.

• In Colombia, a coal exporting country, in recent years the price of one tonne of exports has barely reached a quarter of the cost of one tone of imports.

• Similar trends can be observed in Argentina and Brazil. In Argentina, each exported tonne barely covered 40% of the cost of each imported tonne in 2012. In Brazil, the price of each exported tonne covered almost 50% of the cost of each imported tonne in 1990; in recent years, this ratio has fallen to 26%.

Brazil: Price per ton exported, price per ton exported

Colombia: Price per ton imported, price per ton exported

Despite physical trade deficits (exports > imports in tons) (we call this deficit because the country is depleting resources), we see that after 2012-14 there are deficits in the monetary Trade Balances (imports > exports, in dollars).

• Argentina is an exception, she was still in superavit in 2013, 2014 but in 2015 she is almost in trade deficit (million USD)

Brasil, trade deficit

since

2012 (millions USD)

Colombia, trade deficit

s since 2014 (millions USD)

The present conjuncture

• In particular, we note that the monetary trade deficits recorded in very recent years (in Brazil, Colombia, Ecuador, Peru, and soon in Argentina) are linked to greater physical pressures. • Excessive investment in the extractive industries and transport

infrastructures, large volumes of physical exports plus weakened demand abroad, lead to monetary trade deficit. • Financial and commercial burdens have sometimes been resolved through a

greater biophysical effort; that is, the export of a larger volume of natural resources to acquire the assets needed to import goods and/or to pay for the external debt. This is an imminent danger in South America. There is a trend in 2014-2015 of exporting more or less the same amount (in tons), at lower prices.

Physical Trade Balances of Argentina and Brasil 1990-2012

Source: United Nations (2014), authors’ elaboration

Argentina, imports and exports in million tons

Brazil, imports and exports in million tons

Physical Trade Balances of Colombia and Ecuador 1990-2012

Colombia, imports and exports in million tons Ecuador, imports and exports in million tons

• Export flows, expressed in physical units, behave differently in the five countries. However, a common feature is that exports (in tons) increased three or four times between 1990 and 2012, and the concentration in a few types of materials.

• On the one hand, biomass exports (especially soybeans) are Argentina’s main export throughout the analysed period.

• In Brazil, minerals (iron ore) constitute the largest group of exported material goods, increasing steadily (together with biomass) throughout the period of analysis such that the physical trade balance is always and increasingly negative.

• In Colombia, exports increase at the same pace as coal, the country’s main export (in tonnes).

• In Ecuador, however, the volume of exported materials has stagnated since 2005. This stagnation is due to the performance of the oil sector as biomass exports continue to grow.

• In Peru, exports of minerals and biomass measured in tonnes have increased, whereas the exports of fossil fuels, and also of manufactures and other value-added products have followed an uneven path since the international crisis that began in 2008. Peru has been debating whether it should become a major gas-exporting country.

This trade structure, which cannot overcome until the specialization in the production of raw materials for export is given up, enables us to understand the structural differences found in the terms of trade.

• At current prices, Argentina must export more than three tonnes for each tonne imported, although in 2003 this ratio approached a peak of almost eight tonnes.

• Between 1990 and 2012, the ratio in Brazil has grown from three to four tonnes exported for each tonne imported.

• Colombia needs to export five tonnes of mostly raw materials to import one tonne of manufactured goods or other value-added products.

• In Ecuador, this ratio has improved over the years. Currently, the biophysical effort required to pay for one imported tonne is two exported tonnes.

• In Peru, the biophysical trade relationship improved from 1.8 tonnes exported per imported tonne in 1990, to 1.4 in 2012. However, here in Peru we encounter a common problem in that the physical accounting for exported metals does not account for all the materials extracted from the mine, becoming tailings and slag.

Physical trade deficits, monetary trade deficits, and democratic deficits

• Given current trade deficits, several processes are possible. Currency devaluations could slow imports and promote exports, as is happening in several countries. Dollarized economies like Ecuador can only curb imports with tariffs or physical quotas.

• In addition, exports could be promoted by other means such as lowering wages and working conditions, and lowering environmental standards in the extractive industries.

• The cyclical deterioration in terms of trade after 2013, and the increasing deficit in the monetary trade balance of these economies, might lead to a greater environmental burden and more ecological distribution conflicts at the commodity extraction frontiers.

• However, politically it could favour the cause of the academics and politicians who have argued in favour of “post-extractivist” economies and local democracy (such as Gudynas, 2011; Svampa, 2013; Acosta, 2011).