MERCOSUR: Progress Depends on Overcoming Argentine Crisis

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Feb 19 2002 (IPS) - The presidents of South America’s Mercosur trade bloc said Monday in the capital of Argentina that the recent floating of the Argentine peso would pave the way for faster progress towards integration, although caution still rules regarding the creation of a common currency.

The Southern Common Market (Mercosur) summit, which completed a Dec 20 meeting in Montevideo that was suspended due to the collapse of the Argentine government of Fernando de la Rúa, underlined the bloc’s support for President Eduardo Duhalde, who has headed the government of this crisis-stricken country since Jan 1.

Presidents Fernando Henrique Cardoso of Brazil, Luis González Macchi of Paraguay and Jorge Batlle of Uruguay, as well as Jorge Quiroga of Bolivia and Ricardo Lagos of Chile – the bloc’s two associate members – issued a statement of “solidarity” with Duhalde, and urged multilateral lenders to show “comprehension” towards Argentina.

Cardoso, who refuted rumours that Brazil and a group of other countries planned to assemble a financial aid package for Argentina, added that his government would do “everything possible” to get the International Monetary Fund (IMF) to help Argentina overcome its economic collapse and debt default.

“We know that aid requires efforts, but we believe that Argentina is already making efforts, and that it is not fair to demand that the efforts be made first, before the aid is granted,” he said, stressing that IMF assistance should be “simultaneous” with the government’s efforts.

Cardoso underlined that he was attempting to “amplify the level of information in leading countries on the need to grant effective aid to Argentina.” He also maintained that support should not come from Latin America, “which is poor,” but from the richest nations.

The leaders of the four full Mercosur members and the associate countries expressed relief over the elimination of the convertibility or currency board scheme that held the Argentine peso at par with the dollar for 11 years.

Quiroga said the currency board was “an unacknowledged difficulty” for the Mercosur for many years.

“Modifying the exchange regime entails serious difficulties, but it also provides an opportunity to move forward regarding integration within the Mercosur, as well as with the Andean countries” (the Andean Community of Nations, made up of Bolivia, Peru, Colombia, Ecuador and Venezuela), said Quiroga.

“We now have a chance to move towards real integration,” he added.

Lagos concurred with Quiroga, saying Argentina’s newly free- floating peso is “a very important element that must be underscored, because all of us now have similar foreign exchange systems, which makes it easier for us to advance” towards regional integration.

However, the Chilean president said he had warned Duhalde that “the key to moving forward in the wake of a devaluation was the absence of inflation.”

To illustrate that, Lagos noted that in the past two years, the Chilean peso depreciated 25 percent against the dollar, while inflation stood at a low two percent.

The creation of a common Mercosur currency was discussed with caution at the summit, despite the fact that in last week’s technical-level meetings it looked like it was not far off, due to the decision to create a Mercosur Monetary Institute.

In Lagos’ view, a common currency should be the result of many years of macroeconomic coordination in the subregion.

Martín Redrado, the Argentine Foreign Ministry’s secretary of international economic relations, told IPS that the announcement of the creation of the Mercosur Monetary Institute would have to wait for the June summit, in order for Argentina’s macroeconomic stability, based on the new exchange regime, to be evaluated.

Argentina scrapped the convertibility law on Jan 1, when it adopted a dual exchange rate that fixed the peso at 1.4 against the dollar for official transactions and created a parallel free market on which the peso rose to two against the dollar.

After that, however, the dollar was freely floated.

Redrado also reported that a permanent dispute settlement tribunal would be created, as the result of the “Olivos Protocol” (named for the Buenos Aires suburb where the presidential residency is located), signed by the leaders.

The tribunal, to be based in Asuncion, will replace the ad hoc panels that were previously set up on a case by case basis when conflicts of interest arose among the bloc’s members.

The Mercosur summit also issued a communique in which the members’ commitment to integration, democracy, social justice and the fight against terrorism was reaffirmed, as well as their commitment to advancing towards economic coordination with Bolivia and Chile.

The presidents expressed their interest in the efforts towards reaching a trade agreement between the Mercosur and the United States, as well as their support for the bilateral negotiations between Santiago and Washington.

They did not express reservations regarding the contacts between Uruguay and the United States to try to begin negotiating a bilateral trade deal.

“No,” responded Batlle emphatically when he was asked whether his counterparts had said anything about Uruguay’s contacts with Washington, which took place in the framework of his official visit last week to the United States.

“We talked about everyone’s interest in moving towards free trade accords with the United States, Europe and the Andean countries,” Batlle added.

With respect to the Mercosur’s talks with the Andean Community of Nations, the communique confirms “with emphasis” the governments’ interest in completing the negotiations for a free trade accord between South America’s two main trade blocs by June.

The statement expressed hope that progress towards an agreement would be made at a Mar 5-7 meeting between representatives of the two blocs.