SUNS  4360  Tuesday  26  January  1999

Argentina: Studying strategy over devaluation of Real



Geneva, Jan 22 (IPS) - The government of Argentina told the World Trade Organisation (WTO) that it was studying, in conjunction with Brazilian authorities, measures to neutralise the possible negative impact of the devaluation of the Real.

Any decisions reached will be compatible with standards of the Geneva-based WTO, the multilateral system's regulator of free trade rules, said Argentina's under-secretary of foreign trade Felix Pena.

Argentina and Brazil, along with Paraguay and Uruguay, are partners in the Southern Cone Common Market (Mercosur), South America's largest free trade zone, in which Bolivia and Chile have associate status.

Mercosur, a trade bloc of around 200 million inhabitants, accounts for 80 percent of South America's combined gross domestic product.

The initial devaluation and later free flotation of the Real, Brazil's local currency, last week threatened to alter the economic equilibrium among Mercosur partners and made markets nervous worldwide.

Pena urged a deeper diagnosis, based on real data, of the devaluation's true effects on trade flows between Brazil and Argentina.

The Argentinian official flew in to Geneva from Buenos Aires to participate this week in one of the periodic reviews of Argentina's trade policies - a WTO practice aimed at monitoring each country's compliance with the institution's neo-liberal policies.

During the session of the body that reviews trade policies, a majority of the delegates who spoke expressed concern over the shift in Argentina's economic situation in light of the recent changes in Brazil.

Guillermo Gonzalez, an Argentinian negotiator at the WTO, said that the maintenance and consolidation of a policy of open trade required economic and political stability at a global level, and in the region in particular.

The Argentinian officials declared their confidence in the results of the dialogue started with Brazil in the wake of the recent devaluation.

A mission headed by Argentina's secretary of industry and commerce, Alieto Guadagni, will begin negotiating with Brazil's minister of development, industry and commerce, Celso Lafer, and those close to him on Monday in Brazil.

Argentina insists that the accords reached must fit squarely within the framework of the subregional bloc, with the aim of strengthening the free trade zone. To confront the crisis, what is needed is "more Mercosur," said Pena.

Another requirement proposed by the Argentinian officials was that all measures must be approved by consensus, and should be oriented toward the expansion, "not the restriction," of trade.

There are fears in Argentina that prices could begin to fluctuate as a consequence of last week's devaluation. Pena said devaluation could have an impact on prices, although not necessarily an automatic effect.

Lately Mercosur has been experiencing macroeconomic stability. But the bloc's integrationist experience had already suffered disparities among its member countries, such as in its first years of existence in the early 1990s, when nominal differences were seen in terms of exchange policy.

Argentina's authorities say they are acting under the pressure of the local productive sectors, both business and workers, who have been expressing concern over the new panorama in Mercosur and are demanding government action.

"We are heading for Brasilia Monday after having taken time for analysis, but under pressure and the expectation that our conversations must give off clear signals," Pena told journalists this week.

"It is necessary to send a transparent message to the markets that within Mercosur, through Mercosur and by strengthening that experience, this kind of situation can be handled," he underlined.

Argentinian authorities believe that the norms already in effect in Mercosur contain the measures needed to balance relations within the bloc in the wake of the devaluation of the Real.

"The catalogue of measures could be enormous. We have to verify whether they are compatible with the WTO and with Mercosur itself. They will also have to be susceptible to an agreement among the partners," Pena added.

The official defended the first measures taken this week by Buenos Aires to check the effects of the devaluation, "because they had already been announced." They were all in line with Mercosur legislation and were simply "a reflection of measures already taken by Brazil," he maintained.

The slashing of tariffs on imports of capital goods not produced within Mercosur, from 14 to six percent, was a measure that had already been announced in 1997. Moreover, it is a copy of Brazil's duty scheme, said Pena.

The application of specific duties on certain branches of toys had been projected since shortly before the devaluation of the Real, and will not affect Brazil in the least, he added.

The Argentinian officials said that in order to curb the effects of the devaluation of the Real they would suggest to Brazil the updating of certain Mercosur standards not currently respected.

Pena mentioned the case of Decision 10 of the Mercosur Council, which was approved in Ouro Preto, Brazil in 1994 and establishes guidelines for conduct regarding subsidies for exports.

Compliance with some norms that have not been fully enforced could have positive effects, "because our business community has the impression that subsidies and subsidised financing of exports have been seen at times," said Pena. Such measures will allow progress to be made while Mercosur is strengthened and the crisis is fought, he added.