ECONOMY-LATAM: Brazil Should Spearhead Bail-out of Argentina

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Jul 2 2002 (IPS) - Brazil must assume a leadership role in bailing out Argentina in order for its neighbour and partner to overcome the severe crisis crippling it, and for the Mercosur trade bloc to recover, says a current of Brazilian economists.

Brazil’s negotiating capacity vis-a-vis powerhouses like the United States is largely tied to Argentina’s rescue and the continued survival of the Mercosur (Southern Common Market, made up of Argentina, Brazil, Paraguay and Uruguay), they argue.

Brazil should even help Argentina financially, drawing on its own resources and whatever it can help drum up abroad for a rescue package, Antonio Correa de Lacerda, president of the Brazilian Society of Research on Transnational Corporations and Economic Globalisation, told IPS.

This is a “decisive” question for Brazil’s role in the world, because Washington wants to see Argentina fail in order to force Brazil, Latin America’s giant, to give up its resistance to a Free Trade Area of the Americas (FTAA) completely under U.S. sway, said the economist.

With Argentina’s collapse, the Mercosur – a trade bloc of nearly 215 million people – becomes inviable, weakening the bargaining power of Brazil and of Latin America as a whole in the negotiations towards a hemisphere-wide free trade alliance, he warned.

That would explain the International Monetary Fund’s (IMF) reluctance to grant Argentina new loans, according to the analyst.

On the other hand, the multilateral lender’s attitude towards Brazil, which recently secured a disbursement of 10 billion dollars, is different, because no one wants to see the downfall of this economy of nearly 170 million which, moreover, is closly following IMF prescriptions, said Correa de Lacerda.

A similar position was taken by the economic director of the National Bank of Economic and Social Development (BNDES), Fabio Giambiagi, at a seminar organised late last week by the Brazilian Centre of International Relations, in Rio de Janeiro.

If it does not start recovering soon, Argentina will be on its way towards the dollarisation of its economy and complete submission to the United States, which would put an end to the Mercosur, said Giambiagi, an economist of Argentine extraction who is close to the ruling party presidential candidate for Brazil’s October elections, José Serra.

Brazil could use part of its foreign reserves to throw together a financial aid package for Argentina, which could amount to 20 billion dollars if it included loans from the IMF and from the Group of Eight (G-8) leading industrialised nations, said the economist.

That is the amount needed to get Argentina’s financial system back on its feet, which is essential for economic recovery, he explained.

Brazil could also contribute by expanding the credit lines of the BNDES, which already finances Brazilian companies abroad, and by suggesting economic policies to Buenos Aires, which according to Giambiagi is having trouble designing sound, effective policies on its own.

But other participants in the seminar questioned whether Brazil was in a position to provide resources of its own and to head a camapaign to bail out its partner from a four-year recession which took a drastic turn for the worse in December, when protests and rioting toppled president Fernando de la Rúa.

Since January, the Argentine peso has depreciated 400 percent in relation to the dollar.

They noted that Brazil has suffered turmoil of its own, such as the devaluation of its local currency, the real, and of its foreign debt bonds since last month, attributed to the real possibility of a triumph by the leftist Workers’ Party (PT) candidate in October, and to the deterioration of economic indicators.

But Giambiagi argued that the current tension is only a passing phenomenon, and will be overcome when the new government takes office early next year.

For Correa de Lacerda, the big problem today is the timid foreign policy of the government of Fernando Henrique Cardoso, which he said lacks the nerve to assume a regional leadership role in cases like the Argentine crisis, because that would require standing up to Washington.

The counterpoint he cited was Mexico which, despite its membership in the North American Free Trade Agreement (NAFTA) with Canada and the United States, has a “much more active” foreign policy, which has led it to sign over 30 free trade agreements with other countries and blocs.

The presence of Mexican President Vicente Fox at the Mercosur summit this Wednesday and Thursday in Buenos Aires will be a new twist that could bring significant developments for Latin America as a whole.

The visit to the Southern Cone region by Fox, who was in Brasilia Monday and Tuesday, will formalise an accord on preferential tariffs negotiated by Brazil and Mexico, after which Mexico will have trade agreements with all of the Mercosur partners.

Fox’s overtures to the South American bloc have arisen from Mexico’s interest in reducing its high level of dependence on the United States, which absorbs 80 percent of its exports. That dependence leaves Mexico heavily vulnerable to any slowdown of the economy of its northern neighbour.

The fallout from the ongoing Argentine crisis and the instability in Brazil has even been felt by the Mexican peso, which has fuelled a movement of solidarity and a search for joint solutions, which could begin to be adopted this week in Buenos Aires.