Choosing sides: liberal economics is not making the headway it should, and that's good politics for Latin America's left.

Four years ago, I predicted that Mercosur, the South American trade bloc, would be swallowed up by the FTAA--the U.S.-proposed 34-nation Free Trade Area of the Americas.

It looks more and more like I was wrong. Mercosur, which was launched in 1991, is gaining momentum by defining itself as a challenge to the U.S.-envisioned Alaska-to-Tierra del Fuego trade bloc, and by adding an oil-rich nation, Venezuela, to its ranks. Mercosur's combined economies now total more than US$2 trillion.

"There has been a push toward greater South American integration as a bulwark against U.S. influence in the region," Jeff Vogt, who follows economic issues for the Washington Office on Latin America, told me. "Mercosur is the most advanced mechanism to do that while making South America a more relevant economic player on the world stage."

Since 2002, three of the four original Mercosur members, Brazil, Argentina and Uruguay, have elected leftist presidents: Brazil's Luiz Inacio Lula da Silva, Argentina's Nestor Kirchner, and Uruguay's Tabare Vazquez. Only Paraguay's President Nicanor Duarte is considered aggressively pro-Washington.

These leaders won elections partly because many voters have yet to see the benefits of neoliberal policies after two decades of deregulation, privatization and tight fiscal limits. According to the Center for Economic and Policy Research in Washington, D.C., Latin America per-capita income fell to 11% between 1980 and 1999 after growing by 79% between 1960 and 1979. More importantly, the region remains the world's most unequal in income distribution. Brazil, for example, has one of the world's 12 largest economies but ranks 85th in per-capita income.

In upcoming months, Mercosur will no longer be just about economics, turning its attention to poverty reduction in meetings of the newly established Mercosur parliament, expected to open this year in Montevideo. Venezuela's President Hugo Chavez--a self-described enemy of American imperialism--is certain to use the new body as a bully pulpit to bury U.S.-led free trade and extend his vision of uniting the region under his Bolivarian Alternative of the Americas.

Rhetoric aside, Chavez brings to the table an important proposal that could end up cementing Mercosur's newfound unity. The Venezuelan leader wants to build an 8,000-kilometer, $20 billion natural gas pipeline from Venezuela to Brazil, Uruguay and Argentina, one Lula has dubbed the "great construction project of the next 50 years in South America." Fat with oil money, Chavez could bankroll much of the pipeline project that could eventually reach Chile, Bolivia and Colombia. He has already set up PetroCaribe, a pact with 14 Caribbean countries that provides cheap oil to be repaid over 25 years. He also has signed a similar deal to help coordinate energy production for Mercosur called Petrosur and proposed an initiative called PetroAndina for Andean nations.

Despite cheap oil and gas, I don't see the Mercosur nations casting their lot with Chavismo. Brazil and Argentina could join the FTAA as soon as they iron out rifts over intellectual-property rights and government subsidies to U.S. farmers. The latter is a sore point for these two agricultural powerhouses, one which jeopardizes exports and access to U.S. markets. Latin American leaders also recognize the importance of trade with the United States, which exports more than $150 billion a year to the region. They are well aware that sustained economic growth can lift millions out of poverty. While growth, low inflation and remittances from abroad have reduced poverty, 40.6% of the region's population--an astonishing 213 million people--remain officially poor, according to the United Nations Economic Commission for Latin America and the Caribbean.

Free trade must benefit the majority, not just corporations. And increased social spending shouldn't mean the end of fiscal responsibility or runaway inflation. Tax reform, which forces the rich to pay their fair share, would help finance badly needed social programs. As long as tens of millions of people live on less than $2 a day and unemployment averages more than double the U.S. rate of 5%, disillusioned voters will continue to elect populist or strident anti-free-market leaders, such as Bolivia's new president, former cocalero Evo Morales. Bolivia, as it happens, is the latest knocking on Mercosur's door to ask for full membership.

COMMENTS? WRITE: [e-mail]