ECONOMY-BRAZIL: Border Towns Suffer Impact of Argentine Collapse

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Mar 4 2002 (IPS) - The Brazilian city of Uruguaiana, on the Argentine border, is suffering the effects of the meltdown in Argentina just as it felt the impact of Brazil’s own crisis a few years ago – a double vulnerability and instability also shared by towns along Brazil’s borders with Paraguay and Uruguay.

Local business, which until December took in 250,000 dollars a day from Argentine shoppers drawn across the border by lower prices, has seen that amount plunge by 80 percent since then due to the collapse of Argentina’s economy, said Ely Trindade, the president of the local merchants’ association, known by its Portuguese acronym CDL.

The slump in business has driven up unemployment and led to an increase in robbery and assault in the southern border city of 140,000, with violent crime peaking on the weekends, Trindade told IPS.

The prosperity or misfortune of Uruguaiana, which is separated from Argentina by the Uruguay River, and is connected to the Argentine town of Paso de Los Libres by the International Bridge, depends largely on the difference between the foreign exchange rates of the two countries.

Trindade, who has been in business in Uruguaiana for 25 years and owns the Biltri Autoparts company, has weathered several shifts in the exchange rate equation, although he benefited from most of the changes due to the cheaper prices offered in Brazil.

Trade on the Argentine side of the border was favoured during the period between the construction of the bridge in 1947 and the mid-1970s, when Brazilians regularly crossed the border to shop in Argentina.

Back then, Argentina was “a relative powerhouse, and it offered better products and prices,” said Trindade.

But in 1978 the situation began to turn around, and since then, businesses on the Brazilian side of the border have enjoyed an advantage, with the exception of short periods in which Argentine prices temporarily sank below prices in Brazil, he added.

Those brief periods were the result of government plans to fight inflation in Brazil with an overvalued local currency.

Shopkeepers in Paso de los Libres thus benefited from Brazil’s failed Plan Cruzado, implemented in 1986, and from the successful Plan Real, which was adopted in July 1994 and kept the new local currency, the real, stronger than the dollar for over a year.

The two decades during which businesses in Uruguaiana were favoured by the differences between the two countries’ foreign exchange rates boosted the city’s growth, and its population, which was similar to that of Paso de los Libres 50 years ago, is now three times that of its neighbour.

Different attitudes also contributed to the expansion of Uruguaiana, said Trindade, who pointed out that people on the Brazilian side of the border tend to invest their savings locally, while Argentines are more likely to invest in Buenos Aires.

However, Brazilian border cities like Uruguaiana, Sao Borja and Itaqui are now facing the risk of losing even their Brazilian customers, after having lost much of their business from Argentine consumers.

The depreciation of the Argentine peso, which has lost more than half of its value against the dollar so far this year, could once again turn the equation around.

That risk, however, is still a distant one given the shortages of products in Argentina and the chaos facing that country’s productive sector, said Trindade. Pharmacies in Uruguaiana, for instance, have largely escaped the loss of Argentine customers, due to the scarcity of medicines on the other side of the border.

In addition, many companies in Argentina have moved to Brazil in the past few years, such as eight small and medium-sized factories that set up shop in Uruguaiana, said Trindade.

The delay in the disbursement of International Monetary Fund (IMF) aid to Argentina will also prolong the inability of businesses in Paso de los Libres to take advantage of the imbalance in exchange rates.

These circumstances give Brazilian businesses a few years to adapt to the new situation, say merchants in Uruguaiana, who are already seeking alternatives.

The 212 businesses grouped in the local merchants’ association, which used to employ 3,500 to 3,800 people, have begun laying off personnel due to the crisis in Argentina.

Trindade explained that businesses along the border tend to have several outlets, and that the closing of stores is a solution for the owners but will mean unemployment for many workers.

In his case, Trindade compensates for part of the loss of Argentine customers with the revenues earned by a store on the border with Uruguay, a country with which Brazil can compete in prices due to the difference in exchange rates.

Despite its difficulties, Argentina is already selling many farm products to Brazilians just across the border at lower prices than those found in Brazil. Argentine gas, which is now 50 percent cheaper than fuel sold in Brazil, is also attracting consumers from Uruguaiana.

However, beef is not yet allowed to cross the border, due to the outbreaks of foot-and-mouth disease that hit Argentine livestock last year, noted a Brazilian customs official at the post on the International Bridge.

And the advantage of cheaper prices at service stations in Argentina is offset by the fact that unlike Argentine gas, Brazilian fuel contains 22 percent fuel alcohol produced from sugar, the official added.

That difference affects the performance of motors, and discourages Brazilians from filling up their tanks on the other side of the border.