TRADE: Brazil, ‘Scapegoat’ for Argentina’s Crisis, Say Analysts

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Mar 2 2000 (IPS) - While business and political leaders in Argentina blame the woes of local agriculture and industry on the decline in trade triggered by last year’s crash of Brazil’s currency, the real, economic analysts suggest that before pointing fingers, they take a hard look at themselves first.

The loud complaints by industrialists and farmers about the losses they have suffered supposedly due to the trade alliance with Brazil – in the Southern Common Market (Mercosur), also made up of Uruguay and Paraguay – have drowned out arguments to the contrary by economic analysts.

The director of the Foreign Ministry’s centre on the international economy, Arturo O’Connell, said Brazil had become Argentina’s new “scapegoat,” and pointed to a “deliberate campaign” to conceal the fact that Argentina continued to enjoy a trade surplus with Brazil.

While Argentina has a bulky trade deficit with the United States, the European Union (EU) and several Asian nations, it still enjoys a trade surplus with Brazil despite the numerous trade disputes between the two countries – which demonstrates that the Mercosur trade bloc is “extremely beneficial,” O’Connell told IPS.

By becoming a partner of Brazil, a country of over 162 million, Argentina won a market several times the size of its internal market of 35 million, protected from competition by industrialised countries thanks to the Mercosur common foreign tariff, he pointed out.

“It is a brilliant piece of business,” he added, since Argentina has logged a trade surplus with Brazil – the world’s eighth largest economy and the client for 30 percent of this country’s exports – since 1995.

And although the surplus shrank after the January 1999 devaluation of the real, the balance remained in Argentina’s favour, he stressed.

A study by the centre headed by O’Connell acknowledged that trade within the bloc dropped last year due to the recession in Argentina and Brazil and the slump in prices of their chief exports.

The report, “Argentine-Brazilian Trade: Confronting the Crisis”, also admitted that the crash of the real “tended to further aggravate the commercial difficulties arising from the regional recession.” But it did not blame the slowdown of trade in the bloc on the devaluation in Brazil.

It pointed out, moreover, that while Argentina’s sales to its giant neighbour, which amounted to 33 percent of total exports in September 1998, fell to 21 percent in March 1999, they had risen again to more than 27 percent by September.

Nevertheless, trade disputes between the two countries and the supposed damages caused by their partnership fill pages in the local press on an average day.

The idea of forming a common market in the Southern Cone region of Latin America emerged in the mid-1980s. But it was not until a few years ago that trade within the subregion really took off.

Argentina’s sales to Brazil alone soared from 500 million to nine billion dollars, from the creation of the bloc in 1991 to 1997.

Mercosur, home to more than 200 million inhabitants, began to draw increasing amounts of foreign investment. Many car-makers, for example, set up shop in Argentina to capitalise on the country’s agreements with Brazil, South America’s largest market.

So while Argentina’s exports tripled overall from 1991 to 1997, sales to its Mercosur partners rose more than 16-fold.

Nevertheless, farmers in Argentina continue complaining today about the difficulty of competing with Brazil, which it blames for the crisis sweeping the local agriculture sector.

Similar complaints are heard from paper, footwear, farm machinery and car manufacturers.

But analysts maintain that if the problems facing local producers are closely analysed, it becomes clear that the downturn began prior to the devaluation of Brazil’s local currency.

For example, Brazil is blamed for the bankruptcy of 20 percent of Argentina’s pig farmers, but economists point out that the sector’s troubles actually date back to 1990.

The inflow of cheap imports since 1998 has become “a dramatic issue for small farmers,” said the president of the chamber of pork producers, Jorge Rodríguez.

That sector is demanding that the government slap controls on imports of cheap pork from the European Union, while warning that it will fight to keep cheap Brazilian imports from filling the resultant vacuum.

O’Connell also disagrees with farm machinery manufacturers of the central province of Santa Fe, who blame a plunge in sales on the entry of lower-priced equipment from Brazil.

The economist said the problem facing the manufacturers was the grave crisis plaguing the countryside. “Farmers do not have money to buy machinery, due to the drought they have suffered in the past few months, EU farm subsidies and the slump in international commodity prices.”

It is not Brazil’s fault if Argentina does not want to devalue the peso – which is pegged to the dollar – or extend soft credit to small and medium-sized companies, he maintained.

The economist also questioned the position taken by dairy farmers, “who say 80 percent of their exports go to Brazil, which means the devaluation of the real would have tremendous effects.

“They did not specify, however, that they were referring to 80 percent of just six percent of their total production,” the rest of which is sold on the internal market, he pointed out.

Protests have also been heard from rice farmers, who sold half of their exports to Brazil until last year, when that country was able to cover its own demand for rice.

A prominent local farmer, Enrique de León Belloc, dramatically declared “this is Mercosur’s death certificate.”

But Brazilian rice farmers recommended that their colleagues in Argentina and Uruguay foment internal consumption rather than protesting. Brazilians eat an annual per capita average of 74 kgs of rice, compared to just seven kgs in Argentina and Uruguay.

Another element of discord was the publicity given by the Brazilian Embassy in Buenos Aires to tax incentives and credit options offered to draw investment.

But according to O’Connell, while it is true that at least six Brazilian states are competing with each other to offer the best conditions for investment, Argentina also offers incentives to attract capital, but has failed to promote them sufficiently.

The ‘Unión Industrial Argentina’ business association says at least 280 companies have already been looking into the possibility of shutting up shop here and heading to Brazil. Brazilian officials, however, say the total is closer to 40 – mainly car- makers, textile factories and food companies.

Economist Roberto Lavagna, designated to negotiate agreements between Mercosur and the European Union, argued that it was wrong to blame Brazil for the lack of competitiveness of Argentina’s productive sector.

Lavagna said Brazil did the same thing other countries did: adopt policies designed to boost production.

He stressed that Argentina must not expect Brazil to withdraw such incentives, but that it should shore up competitiveness with internal measures aimed at stepping up production, and “coordinate” with Brazil the application of the measures in order to keep them from being unilaterally implemented without consultation between the two partners.

Meanwhile, lawmakers in Argentina have joined in the chorus of criticism against Brazil, as has Carlos Ruckauf, governor of the province of Buenos Aires, the country’s largest.

Ruckauf warned that companies which transferred their factories to Brazil would not be allowed to sell their goods to his province.

Such threats and complaints against supposed practices of dumping – the export of products at prices deemed artificially low – are heightening the tension in the commercial relations between the two countries.

But the presidents of Mercosur countries – including new leaders in Argentina and Uruguay, as well as associate member Chile as of Mar 11 – have declared their aim to “relaunch” the trade bloc (which accounts for 80 percent of South America’s combined GDP) on a foundation of greater coordination.