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Posted on Sustainabilitank.info on October 29th, 2008
by Pincas Jawetz (pj@sustainabilitank.info)


Eyes Wide Open.

By Mario Osava from Brazil, October 29, 2008.

RIO DE JANEIRO, Oct 28 (IPS) – The reaction by South America’s Mercosur trade bloc to the current global financial crisis is limited for the time being to observing “possible impacts” on stock markets, production and unemployment, and “maintaining fluid and agile communications” regarding any measures taken by each member country. The bloc convened its Common Market Council — composed of the members’ ministers of economy and foreign affairs and their central bank presidents — Monday in the Brazilian capital, to discuss the crisis and how they could act to mitigate its effects. Mercosur (Common Southern Market), South America’s biggest trade bloc, is made up of Argentina, Brazil, Paraguay and Uruguay, with Venezuela in the process of becoming the fifth full member. The proposals presented at the Seventh Extraordinary Meeting of the Council will be considered, along with future recommendations, at a new meeting scheduled for Dec. 15, on the eve of the Latin American and Caribbean Summit organised by Brazil for Dec. 16-17 in Salvador, capital of the northeast state of Bahi a.

Brazil suggested calling a ministerial meeting of the United Nations Economic and Social Council (ECOSOC), which this country’s diplomats are seeking to strengthen, while Venezuela, for its part, proposed a world summit of heads of state and government, according to the joint press release issued by the Common Market Council.

Chilean Foreign Minister Alejandro Foxley was in favour of the Group of Eight (G8) most powerful economies increasing the capital of multilateral development and financial institutions, in particular the Inter-American Development Bank, to provide assistance to Latin America.

With the presence of representatives from the bloc’s full and associate members, in addition to observers from Guyana and Suriname, the meeting included delegates from all of South America.

The consensus expressed in the final statement underlines “the need for an in-depth and comprehensive reform of international financial structures” and “establishing more prudent regulations for capital markets.” The Council also called for a “balanced” conclusion of the World Trade Organisation’s (WTO) Doha Round of multilateral trade talks, which was suspended indefinitely in July after failing to reconcile differences between negotiators, in particular, India and the United States.

The Mercosur statement admits that today South America is “better prepared than in the past” to face a financial crisis, thanks to its “sound macroeconomic fundamentals.” Strengthening integration, expanding trade and enhancing financial cooperation in the region could prove “crucial” to “preserve and further the economic and social gains made in recent years,” it adds.

“Fortifying our integration will lessen the impact of the crisis” by maintaining trade and capital flows, Brazilian Foreign Minister Celso Amorim said at a press conference after the meeting.

Foxley rejected “protectionist policies” as a way to respond to the crisis, arguing that they would only exacerbate social problems.

Brazilian Senator Aloísio Mercadante, an economist with the governing Workers’ Party (PT), warned against protectionist temptations, arguing that individual solutions are no solution at all.

The statements by the Brazilian and Chilean authorities were aimed at the Argentine government, which tends to respond with tariffs, as it has on several opportunities in the last few years, to defend its market from being flooded by imported goods. One of the proposals put forward by Buenos Aires was an increase in the Mercosur Common External Tariff.

The steep depreciation of the Brazilian real, which has fallen more than 30 percent against the dollar since August, heightened Argentina’s fear that the imbalance in bilateral trade will worsen.

From January to August, Brazil had a 3.6 billion dollar surplus in its trade with Argentina, a 40 percent increase as compared to the same period of 2007, despite the growing overvaluation of Brazil’s local currency, a trend that has been reversed since August.

Mercosur “should adopt common decisions,” but if is unable to, it should at least establish “guidelines” of some sort for the measures implemented by each country to counter the effects of the financial crisis that originated in the United States, Tullo Vigévani, director of the School of Philosophy and Sciences at the Sao Paulo State University, told IPS.

Recalling the “acute crisis” suffered by Mercosur back in 1999, when the Brazilian currency fell sharply and the integration process reached its weakest point, he pointed out that the “bloc did not lose its viability.”

Today the situation is more severe, with the Mercosur integration process largely stagnant, but the member countries now understand that integration is key to achieving individual development and “they must also realise that preventing the weakening of each and every member is in everyone’s interest,” said Vigévani.

The international affairs expert, who closely follows the Latin American integration process, noted that an agreement signed by Mercosur in 2005 stipulates the principle of balanced commercial relations between members of the bloc.

The present crisis and the depreciation of the real could turn out to be an opportunity to set limits for trade imbalances, such as a “band” of tolerance and countervailing measures in favour of the country suffering the deficit, he said.

The greatest obstacle to such a strategy is that an economic slowdown in Brazil, expected to set in next year as a result of the global financial turmoil, will have a brutal effect on neighbouring countries with much smaller economies, while the South American giant will barely feel any repercussions from their troubles, he observed.

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