ECONOMY-MERCOSUR: U.S. Treasury Secretary Hands Out Grades

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Aug 7 2002 (IPS) - United States Treasury Secretary Paul O’Neill made clear in his tour through the Southern Common Market (Mercosur) that Washington has given Uruguay high marks for its solid economic policy, Brazil is still in the dock and Argentina must be taught a lesson for having defaulted on its foreign debt.

“We in the United States are glad to work through the international financial institutions to support nations that support sustainable growth-creating policies,” O’Neill said at the close of his meeting Wednesday with Argentina’s Economy Minister Roberto Lavagna.

The U.S. official said the aim is for Argentina to achieve a loan agreement with the International Monetary Fund (IMF) “as quickly as possible”, and suggested that this could occur with “technical” advice from Washington.

O’Neill said the government of Eduardo Duhalde is taking steps in the right direction and there is reason to believe that Argentina will get “back on its feet” after the economic collapse that has spread to Brazil, Paraguay and Uruguay, its partners in Mercosur.

Lavagna, more enthusiastic than his U.S. counterpart, said Washington’s support is fundamental for achieving and agreement with the IMF, allowing the consolidation of the economic policy currently being implemented and the possibility of gross domestic product (GDP) growth by year-end.

O’Neill began his tour of the region Sunday in Brazil, which is suffering rapid economic deterioration while a hotly contested presidential race is under way for October’s elections.

Tuesday, the treasury official spent a half-day in Uruguay, which a day earlier had received direct aid of 1.5 billion dollars from Washington to stave off the collapse of the banking system, long considered one of the most stable in Latin America.

Brazil is fighting for 20 billion dollars in assistance from the IMF and other multilateral financial institutions in order to balance its accounts and halt the continued depreciation of its currency, the real, with relation to the dollar. O’Neill’s visit only caused greater volatility.

His stop in Brazil gave O’Neill the opportunity to recommend the South American giant as a recipient of investment and express the “solid support” of the United States. But his statements proved insufficient to convince experts, who say the urgent needs of the country demand concrete action.

Brazil’s President Fernando Henrique Cardoso was forceful in saying, through his spokesman, Aleixandre Parola, that he is anxiously awaiting the “effective support of the United States,” like what was provided for Uruguay with the disbursement of the 1.5-billion-dollar bridge loan.

It was precisely that direct aid from Washington — to tide Uruguay over until the IMF approves the contingency credit of 3.8 billion dollars this week — that allowed the smallest of the Mercosur members to renew bank activities Monday, paralysed since Jul 30 due to lack of cash.

The bridge loan to Uruguay is seen as unusually large, given the country’s relatively tiny economy, but O’Neill justified it by pointing to the “healthy financial policies” of the Jorge Batlle government and efforts to comply with the requirements of the IMF, World Bank and Inter-American Development Bank (IADB).

During his stop in Montevideo, O’Neill praised the “solid” policies adopted by the Batlle government in recent days to confront the severe crisis afflicting Uruguay’s financial system, which was triggered by the ongoing withdrawal of deposit that had, cut reserves nearly by half so far this year.

Uruguay has also promoted free trade, maintained low inflation and taken firm action in the last week, making extraordinary efforts to maintain the health of its financial sector, according to the U.S. official.

President Batlle expressed appreciation for the international support, and particularly his U.S. counterpart, George W. Bush, for facilitating the bridge loan, saying it will allow Uruguay to confront “one of the most serious crises in its history as an independent nation.”

“Why did the United States support Uruguay so quickly, and not Argentina?” wondered Susana García, an Argentine who lost her savings as a result of the crisis and took part in the street protests in Buenos Aires during O’Neill’s visit.

“It’s hard to know, because there is corruption in Uruguay like there is here. O’Neill probably thought there was too much money here that ended up where it shouldn’t,” she said in comments to IPS.

García joined the crowds of people gathering for the protest organised by labour unions, associations of the unemployed and the leftist parties, marching through downtown Buenos Aires.

With respect to the different treatment Washington had given Uruguay, O’Neill said, “Not all countries are equal.”

The treasury secretary stressed that the aid to Uruguay does not imply a change in Washington’s policy towards the region’s economies in crisis, like Argentina and Brazil.

Upon his arrival in the Argentine capital, O’Neill found a country showing signs of a tenuous economic recovery, with slight growth in foreign trade and tax revenues, and political and social stabilisation.

Duhalde told O’Neill that “the time for aid is now,” in order to reinforce the small achievements the country has made in recent months as a result of the liquidation of exports, which is stabilising the peso-dollar exchange rate and the incipient recovery of the farming and industrial sectors.

Economy minister Lavagna’s aspirations are hardly ambitious. He does not expect fresh money to finance growth, but only an accord with IMF to re-programme the 3.0 billion dollars in debt that comes due in September and the payment obligations for the rest of this year and next.

Meanwhile, an unemployed man, who stood outside the free cafeteria for children that O’Neill visited Wednesday in the outskirts of Buenos Aires, commented on the possibility of assistance from the United States or international financial institutions.

“If they are going to send money, I hope the government here doesn’t steal it again, otherwise it would be better if they didn’t send anything,” he said.

Experts and politicians agree that the reticence of the IMF and United States to aid Argentina is due to the massive flight of capital recorded in the first two years of the government of Fernando de la Rúa, Duhalde’s predecessor.

The IMF, World Bank and IADB and Washington are seen as attempting to use Argentina to set an example, teaching the country a lesson of sorts for having applauded the congressional decision in December to declare a default on the country’s foreign debt to private creditors.