Accessibility links

Argentina's Economic Crisis Worries Brazilian Officials - 2001-11-01


Argentina's continuing economic crisis is hurting not only neighboring Brazil but the entire South American trade bloc, known as Mercosur. Brazil is anxiously awaiting the new economic package that the Argentine government is preparing to unveil.

Brazil is closely monitoring developments in Argentina, as President Fernando de la Rua prepares to announce another package of economic measures to pull his country out of its deepening crisis.

The prospect of Argentina defaulting on its $132 billion public debt has scared investors, and has led brokerage firms to downgrade the country's credit-worthiness. Because Argentina's debt represents one-fourth of all emerging-market bonds, investor worries over Argentina have spilled over to Brazil.

Brazil's stock and currency exchange markets have fluctuated for much of the week, partly because of the uncertainty surrounding Argentina. The Brazilian currency lost some of its value against the U.S. dollar early in the week, but then recovered somewhat by Thursday.

A World Bank report suggesting Brazil might have to re-negotiate its foreign debt has created additional anxiety, even though the notion was quickly dismissed.

Brazilian Finance Minister Pedro Malan flatly rejected this possibility, saying Brazil remains on track and within the targets set by the International Monetary Fund. The head of an IMF mission visiting Brazil Thursday described the World Bank suggestion as "ridiculous".

But analysts warn all this could change if Argentina ends up defaulting on its debt. Economist Lia Valls Pereira told the Globo News network that investors have become extremely cautious. "They are looking to reduce their level of risk, " she said, "and whatever worsens the situation in Argentina, such as a debt moratorium, will hurt Brazil."

Brazil and Argentina are the two main trading partners in the four-nation South American trade bloc, known as Mercosur. Yet Argentina's continuing economic difficulties have put strains on the trade bloc.

The Vice President of Brazil's National Agricultural Confederation, Giman Viana Rodrigues, said he is worried about Mercosur's future. "I don't foresee Mercosur's extinction, but it could suffer from extreme disorganization and thereby lose its prestige internationally, if Argentina's economic problems continue," he said.

Mr. Viana Rodrigues, who spoke to VOA Thursday, went on to criticize recent comments by Argentine Economy Minister, Domingo Cavallo, who said Mercosur cannot remain viable as long as the Brazilian currency continues to devalue. Mr. Cavallo's remark was immediately repudiated by top Brazilian officials.

Argentina's future was one of the main topics raised during Brazilian President Fernando Henrique Cardoso's visit to France this week. In meetings with top French officials and business executives, the Brazilian leader is reported to have urged patience, while expressing confidence in the eventual economic recuperation of the Argentine economy.

XS
SM
MD
LG