MERCOSUR: Scepticism, Paralysis and Lost Paths

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Aug 13 1999 (IPS) - Scepticism is the dominant attitude among Brazil’s and Argentina’s officials, economists and business leaders when it comes to the Southern Common Market (Mercosur). The trade bloc has not resolved its institutional crisis and seems to depend more on individual decisions than on trade agreements.

Trade between Mercosur member countries is weakening and the bloc’s stability is at risk, despite official declarations of political good will and repeated confirmations that signed agreements are still valid.

Brazil, the largest member of the bloc that also includes Argentina, Paraguay and Uruguay, is once again suffering currency exchange pressures, and Argentina’s economists and officials fear another Brazilian currency devaluation this year.

Argentina’s industry minister, Alieto Guadagni, acknowledged Friday that Mercosur “has very serious problems,” that are amplified by the lack of laws and institutions to show the way in times of adversity.

“Mercosur is in agony because we don’t have institutions to indicate what we should do, for example, if the exchange rate shoots up in one country and creates a distortion,” maintained Gaudagni, refering to the Brazilian devaluation in January.

The depreciation of the real hurt Argentinean competition in exports and the country was flooded with lower-priced Brazilian products, such as textiles and shoes. “We aren’t protectionist, we want healthy competition,” assured Guadagni.

Mercosur, a market of 200 million consumers, has increased the exchange of goods and services, both within and outside the bloc, since its creation in 1991. But the recession, which spread after Brazil’s currency devaluation, has hit its most critical moment in Mercosur’s history.

Argentinean economist Guillermo Calvo, who predicted Mexico’s 1995 economic crisis, warned that another Brazilian devaluation is possible and would mean “the end ” of Mercosur. “This combination of a fixed exchange rate in Argentina and a floating rate in Brazil is not good for us,” he said.

Economist Beatriz Nofal agreed, saying “as it stands, Mercosur does not work,” and she recommended creating institutions to help overcome the trade bloc’s economic distortions, divergences and conflicts.

Rodolfo Terragno, a leader of the opposition Alianza party, stated that the effects of “the devaluation in Brazil must be compensated.” Economist Adalberto Rodriguez maintained that Argentina had “acted with a series of poor improvisations.”

Rodriguez, who could become Argentina’s economy minister if the opposition Alianza party wins October’s elections, said Brazil is waiting until after the elections to go back to the negotiating table. In the meantime, Mercosur “doesn’t exist, it is between parentheses,” the economist added.

The president of the Argentinean Industrial Union, Osvaldo Rial, commented that the business community is going to want to “commit suicide” if there is another Brazilian devaluation.

Argentinean minister Guadagni says the lack of institutions is wearing out presidents and ministers, who must move forward with planned and unplanned meetings that carry enormous expectations, but are then frustrated because the parties cannot reach an agreement.

The Mercosur institutional crisis will begin to recede once the issue disappears from media headlines and leaders can get back to their meetings without pressure, stated Luiz Seixas Correas, Brazil’s vice-minister of foreign affairs, during his visit to Buenos Aires.

But declarations made in Brazil by government officials are getting on Argentineans’ nerves. Foreign minister Luiz Felipe Lampreia insisted this week that industrialists in Argentina should have improved their competitive edge in order to avoid the effects of the real’s devaluation.

The most recent crisis erupted late July, when Argentina’s government unilaterally decided to impose restrictions on some imports, including those coming from within Mercosur – which was against the trade bloc’s spirit of free trade.

Brazil rejected the measure and Argentina agreed to exclude Mercosur from the restrictions, but maintains its claims for compensation for damages arising from Brazil’s devaluation, especially because official studies show that Brazil, the largest Mercosur member, could call for further devaluations this year.

Argentina’s economy minister, Roque Fernandez, says Brazil must improve its fiscal solvency. But its deficit persists and the Brazilian states hold large short-term debts – a combination of factors similar to those preceding the January currency devaluation.