The Reduction of Asymmetries in MERCOSUR As a Way of Development Aid and South-South Cooperation: the Case of FOCEM

Abstract

Financial transfers from richer members to the poorer ones are a necessary tool for creating commitment to a regional integration project, especially from countries that have less potential to benefit economically from the process, as the case of EU shows. Since 2004, MERCOSUR has a mechanism for reducing asymmetries, the FOCEM, which is also a form of development aid and South-South cooperation. Brazil, the largest economy of MERCOSUR, accounts for 70% of the resources, while Paraguay, the least developed country, is entitled to 48% of annual payments. The aim of the paper is to evaluate how the fund has worked. The data collected show that FOCEM has become representative in relation to the GDP of Paraguay, its main beneficiary, and to the amount of development aid granted by Brazil, its main contributor. At the same time, the fund faces serious institutional challenges, as the MERCOSUR itself.