SUNS4369 Monday 8 February 1999

Trade: Argentina loses love for Brazil



Buenos Aires, Feb 4 (IPS/Marcela Valente) -- The Brazilian crisis made it patently clear that Argentina's interest in the Mercosur lies almost exclusively in its trade potential.

Hence, when Brazil goes into recession, bilateral conflicts flourish and the competitiveness of local production is called into question.

Since the devaluation of the real in mid January, Argentine entrepreneurs have been pressing the government of President Carlos Menem for the adoption of measures to protect the industry from a possible flood of Brazilian products.

As Brazil is the main market for Argentinean exports and in turn its production competes with that of Argentina in third countries, entrepreneurs are pushing the government to negotiate in the midst of a crisis, resulting in a resounding failure due to the bad timing.

Economist, Arturo O'Connell, of the Exterior Service Institute, told IPS Argentina had benefitted from the "exceptional situation of the revaluation of the Real and the growth of Brazil" in recent years. These conditions started to change in January with the devaluation of the Brazilian currency, but in O'Connell's opinion, the core of the problem lies the fact that the Argentine companies did not become efficient enough to go beyond the Brazilian market.

"Why are entrepreneurs complaining about the supposed 'avalanche' from Brazil, a nation we have a trade surplus with, when they don't say anything of the 'avalanche' from the United States or the European Union, where we have a trade deficit?," asked the entrepreneur.

The problem is that the industries "are taking advantage of the crisis in Brazil as part of a deliberate strategy to blame Brazil for a problem of falling sales which really started before the crisis" in the neighbouring country, he commented.

To illustrate this, he indicated the case of the automobile industry - the sector which would be that most affected by falling demand inBrazil, its main export market. Auto sales started to fall in Argentina six months ago, he stated.

A similar opinion was expressed by officials in both countries, economists, analysts and the Argentine entrepreneurs themselves, who consider the Mercosur, also made up of Paraguay and Uruguay, was an important tool while the Brazil growth rate was on the up.

Economist Roberto Lavagna, of the Ecolatina foundation, said in recent years the bilateral trade balance brought a surplus for Argentina and, in the worst case, this relation could change and return to its 1993
status, when the deficit was on the other side.

Economy minister, Roque Fernandez noted the Brazilian crisis means now is "a good moment for the Argentinean product to strive for greater efficiency and, given the problem with Brazil, move out onto the world market."

"Mercosur should be seen as an intermediary step toward greater competitivity, because if we are going to put all citizens (of the bloc) in a straightjacket of high tariffs and develop an inefficient and protected industry, we will be repeating the errors of the past," he stated.

"Mercosur was useful while Brazil was expanding, but this Mercosur no longer exists," admitted secretary of the Argentine Industrial Union, Jose Ignacio de Mendiguren, who also pointed out that Argentina today
faces a serious problem of competitivity.

"The Brazilian crisis served to make clear the lack of competitivity of the Argentine economy. We could sell to Brazil all these years because it was growing, because the real was overvalued, and because it is our
next door neighbour," he explained.

To his way of thinking, the lack of competitivity is the product of the high interest rates charged on the domestic market and the lack of an industrial policy favouring national production, complaining that
Brazil slaps subsidies on exports and foreign investment.

"We could sell to Brazil under certain conditions, but we would definitely have to address the competitiveness issue in order to find stable substitute markets," insisted the business leader.

Another director of the Argentine Industrial Union, entrepreneur Hugo Cepeda, also pointed out the problem of competitivity, calling for salary cuts to reduce the costs of exportable products.

De Mendiguren brought another issue to the debate. "For Brazil, the Mercosur represents an option to stand before the United States or the European Union with the backing of a bloc, while for Argentina, the
interest is purely commercial," he said.

O'Connell also pointed out Argentina's "more selfish" interest in the bloc. "If we do not have a big surplus from Brazil, the Mercosur starts to lose its attraction for Argentina," he said.

Meanwhile, for Brazil, the common market is a political-strategic option. "That's why Brazil is sick of Argentinean complaints over every decision or measure adopted, threatening the continuity of the block."