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Argentine Collapse Could Destroy Mercosur
February 26, 2002
Summary
The Brazilian government has been increasingly active in trying to prop up the Argentine economy, in part due to fears that its collapse could spell the end for the South American Customs Union. Despite these efforts Argentina is finding itself more and more isolated from the international community. The Bush administration now has the opportunity to shift more South American trade to the United States.
Image Credit: Encyclopaedia Britannica, Inc.
Analysis
Five South American presidents from Brazil, Bolivia, Chile, Paraguay and Uruguay issued a joint statement Feb. 18 urging the International Monetary Fund to aid Argentina's crippled economy immediately. While financial contagion from Argentina's economic collapse has not yet spread to other countries in South America, the statement reflects growing worries that the crisis could damage trade and investment flows among the six countries that belong to the South American Customs Union (Mercosur).
Brazil appears to be taking the lead in trying to drum up economic assistance for Argentina, but its efforts will not be enough. With Washington and the European Union both likely to take a hands-off approach, Argentina will find itself more isolated as its problems worsen. This will undermine Mercosur's viability as a regional customs union and strengthen the position of the United States to expand trade ties with South America through the Free Trade Area of the Americas (FTAA).
Brazilian President Fernando Henrique Cardoso declared Feb. 18 that the IMF should not make the implementation of structural economic reforms a condition for any additional aid to Argentina. Cardoso urged the IMF instead to start disbursing aid immediately to the government of Argentine President Eduardo Duhalde.
However, conservative U.S. economist Anne Krueger, the IMF's second in command, warned during a meeting with Argentine officials last week that no assistance would be forthcoming until Duhalde's government unveils a coherent economic plan that imposes strict fiscal discipline on Argentina's 24 spendthrift provincial governments, Argentine daily Clarin reported. The Bush administration is believed to be encouraging the IMF's tough approach.
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(Story Source)
(c) 2002 Stratfor, Inc.
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Dan
Argentine Collapse Could Destroy Mercosur . . .