* Venezuela joins already troubled South American trade bloc
* Politics overshadows economics at Mercosur, critics say
* Venezuela must still adopt Mercosur rules
BRASILIA, July 31 (Reuters) - On his first foreign trip
since undergoing cancer treatment in Cuba earlier this year,
Venezuelan President Hugo Chavez hailed his country's welcome by
fellow South American leaders into a troubled regional trade
bloc on Tuesday.
Ignoring criticism that Venezuela's entry could eventually
cause greater dysfunction among the Mercosur trade bloc's
members, Chavez cast the event as a continuation of his
self-styled revolution and a sign of greater ascendance for
South America as a whole.
"Our north is the south," the Venezuelan president said,
evoking Simon Bolivar and other revolutionaries who wrested the
continent from colonial rule. "Mercosur is, without a doubt, the
most powerful engine that exists to preserve our independence."
Chavez, who recently declared himself cancer-free, stood at
a podium throughout his 20-minute speech in Brazil's capital and
spoke in a clear, strong voice. Later, after a meeting at
Brazil's foreign ministry, he jigged and declared that his
health "is very good, as you can see."
The meeting was overshadowed by controversial events that
enabled Venezuela's entry into Mercosur, which also includes
Brazil, Argentina, Paraguay and Uruguay. The grouping now
accounts for about $3.3 trillion in combined gross domestic
product, and the leaders said it would be the world's
fifth-largest economy if it were a single nation.
The expansion of Mercosur was criticized by many who see a
paradox in the protectionist policies and leftist slant that
increasingly have come to dominate a bloc originally created to
liberalize trade.
After years of stalled negotiations with Caracas, the group
hastily accepted Venezuela despite the objections of Paraguay, a
marked absence at Tuesday's meeting. The other three countries
made their invitation to Chavez after suspending Paraguay in
June because of the controversial impeachment there by
conservative legislators of leftist president Fernando Lugo.
That move troubled critics, who said it was emblematic of
the decline of a bloc that was founded in 1995, at a time when a
group of free-market reformers was dominant in the region.
"What was once an economic bloc has now been reduced to a
political sideshow," said Mario Marconini, a former Brazilian
trade secretary who is now a business consultant in Sao Paulo.
The inclusion of Venezuela despite the veto of a full-fledged
member, "is a fatal blow to its economic credibility."
Brazilian President Dilma Rousseff said on Tuesday that
Paraguay's suspension is justified until the country
"normalizes" its internal politics. Brazil and other neighboring
countries have argued that Paraguay must proceed with its
regularly scheduled presidential elections next year before they
consider its government to be stable.
FOCUS ON CHAVEZ
Most of the other leaders present glazed over the Paraguay
controversy, and focused instead on criticizing the orthodox
economic policies of the developed world. They cited Mercosur as
a vehicle that could further regional goals of fair trade,
equitable growth and social inclusion.
Chavez said construction companies from Mercosur countries
should take part in ongoing projects to build millions of
subsidized homes in Venezuela. Argentine President Cristina
Fernandez said the region would continue to produce
all-important raw materials for the global economy, but demanded
"financial stability" in return from richer countries.
Mercosur, she said, could "make this new pole of power
indivisible, indestructible."
Chavez, who has spent more than 13 years in office, has
pursued a personality driven government that has scared away
foreign investors and crippled productivity. His acceptance by
Mercosur, opponents say, will give him one more thing to boast
about as he campaigns for another six-year term ahead of
Venezuela's presidential election in October.
Officially, the leaders hailed Venezuela's strengths as a
major oil producer and an important market for everything from
Brazilian machinery to Argentine wheat. In practice, though,
Venezuela can't fully participate in the bloc until it agrees to
accept a common tariff adopted by Mercosur, common agreements
with third-party countries and other prerequisites that Chavez
has failed to embrace since talks for inclusion began in 2006.
In a statement Tuesday, Brazil's National Industry
Confederation, a powerful business group, reminded Venezuela
that "the new member has obligations to fulfill." Citing the
common tariff and other existing bloc conventions, the group
urged Mercosur to establish a timeline by which Venezuela must
comply.
Mercosur, the group added, "should focus on reinforcing the
stability and predictability of the economic bloc."
BLOC IS ALREADY TROUBLED
Many fear Venezuela will only complicate relations in an
already dysfunctional grouping. "The bloc is a mess," said
Rubens Barbosa, a former Brazilian representative to Mercosur
who is now a consultant.
"Just imagine if you start adding Venezuela and others," he
said, noting recent discussions to include Bolivia and Ecuador,
two countries with close ties to Chavez.
Tuesday's ceremony was accompanied by a trickle of business
as Chavez and Rousseff formalized a previously disclosed plan by
Conviasa, the Venezuelan airline, to purchase 100-seat jets made
by Embraer, the Brazilian aircraft manufacturer.
Under the terms of the agreement, Conviasa will pay about $270
million for six Embraer 190 jets, with an option for 14 more.
Meanwhile, Venezuela and Argentina signed an agreement for
greater investment in each other's oil sector. PDVSA,
Venezuela's state-run oil producer, will invest in Argentine
petrochemicals, and YPF, its Argentine counterpart, will invest
in Venezuelan oil fields, according to the agreement.