Brazilian Regional Power in the Development of Mercosul by Gaspare M. Genna and Taeko Hiroi President Fernando Henrique Cardoso’s government presided over three critical junc- tures in the development of the Common Market of the South (Mercosul): the attempted military coup in Paraguay in 1996, the devaluation of the Brazilian real in 1999, and the Argentine economic crisis in 2002. Its responses to these events were critical to the devel- opment of Mercosul because of Brazil’s unique position as the largest country in the bloc. Many theories of free trade and regional integration hold that economic integration requires a regionally preponderant power that acts as a core provider of collective goods for member states. When such a power provides benefits, satisfaction among the member states increases and the likelihood of integration is increased. An examination of the Cardoso government’s policies during the three critical junctures suggests that regional integration declined when Argentina incurred costs during the Brazilian currency crisis and increased when Cardoso’s government provided aid during the Argentine economic crisis and helped defeat the attempted coup in Paraguay. Keywords: Mercosul, Regional integration, Regional power, Interdependence, Economic cooperation The establishment of the Mercado Comum do Sul (Common Market of the South or Mercosul) in 1991 is one of the most significant foreign policies adopted by Brazil since the country’s democratization in 1985. The Fernando Henrique Cardoso government was responsible for a good part of its evolution. During the eight years (1995–2002) of the Cardoso presidency, Mercosul experienced three challenges to its development and tested the Cardoso government’s commitment to its survival and progress. These crit- ical junctures include the attempted military coup in Paraguay in 1996, the devaluation of the Brazilian currency in 1999, and the Argentine economic crisis in the early 2000s. We argue that the Cardoso government’s responses to these events were critical to the development of Mercosul because of Brazil’s unique position as the largest economy in the regional bloc (see Figs. 1 and 2). Much of the literature on free trade and regional integration argues that trade liberalization and economic integration require a regionally preponder- ant power that acts as a core provider of collective goods for member states (see Krasner, 1976; Gilpin, 1987; 2001; Haggard, 1997; Efird and Genna, 2002; Genna and Hiroi, 2004). According to this literature, larger trade partners are willing to incur disproportionate costs because they expect the benefits from 43 Gaspare M. Genna and Taeko Hiroi are assistant professors at The University of Texas at El Paso. Genna investigates the formation and development of regional integration worldwide, while Hiroi’s research interests include democratic institutions and comparative and international political economy. LATIN AMERICAN PERSPECTIVES, Issue 156, Vol. 34 No. 5, September 2007 43-57 DOI: 10.1177/0094582X07306237 © 2007 Latin American Perspectives