Brazil and Argentina compete for the slice of a shrinking pie.

Carlos Eduardo Rebello crebello at
Thu Aug 5 13:44:30 MDT 1999

As usual, this is a somewhat botched piece of writing by an American
reporter that hastily bundles together entire different things.

The US$-peg, currency board systemn presently adopted by Argentina is a
stupid colonial arrangement that deprives the Argentinian state of the
possibility of making *any* monetary policy, by the fact that, as the
old gold stardard systemn of yore, it makes the supply of money to the
economy dependent on variables (in this case, foreign investment) that
the Argentinian state hasn't the slightest possibility to control; the
peg could function in an economy that had strategic importance to the US
economy and that could rely on American help in the occurrence of some
major economic/political upheaval, such as Mexico or Colombia; as
Argentina hasn't a common border with the US and is currently not
undergoing open civil warfare, it cannot make American policy-maker any
more sensitive to her needs. Therefore, the dollar-peg is doomed. But it
has been proposed by the former economic tsar of Menen's, Cavallo
(currently, of course, Menen's political rival) - who is, of course,
none the less a "seepoy" in political matters than Menen, but with more
of a measure of sensible thought - that Argentina should devaluate, but,
at the same time, in order to strenghten the Mercosur, begin
establishing a common monetary police with Brazil aimed at the
establishment of a common currency that would avoid further disturbances
caused by any oscilation of the exchange rate between both countries
currencies; with both counties having a common currency, trade betweeen
than would depende not on diferences in purchasing power of the
currency, but on technology and cost competition. Of course that would
widen the basis for further integration of the two economies, which, in
turn, would be the basis for future political integration, something
that could have only progressive political consequences, by integrating
the working classes of the two countries (or what remains of them)
creating a common left political agenda, and so on.

But the fact is, with the new Chavez constitution in Venezuela (that
afirms verbatim that the Venezuuelan economy is to be managed through
planning), the civil war in Colombia, and the general stagnation in
Brazil - and the consequent impopularity of Cardoso's regime, expressed
by a recent teamsters strike that the government had to do all kinds of
promises to quell without having to call the Army to clean major roads
(to speak about an economic contraction of "just" 1% is something that
could only get out of a head that has gotten his/her wisdon from IMF
ideologues), prospects for the unbroken continuation of neoliberal
policies in Latin America will begin to look very bleak...The graet
problem is that the coming political rupture can come by way of a
renewed Left, or by way of the Far Right.

Carlos Rebello

>    Brazil/Argentina compete for the slice of a shrinking pie

> NY Times, August 5, 1999
> Recession and Rivalries With Brazil Stall Argentina's Economy
 The so-called convertibility law that pegs the
> peso to the dollar prohibits the Central Bank from printing pesos not
> backed by dollars held in the Argentine Treasury, in a system known as a
> currency board. As a result, Argentina has sacrificed a traditional
> economic management tool of printing money to stimulate demand.
> And with tax receipts dwindling and the fiscal deficit climbing to $5.1
> billion -- double targets set in conjunction with the International
> Monetary Fund in January -- government economists say any more deficit
> spending is out of the question.
> Earlier in the year, Menem talked about abandoning the peso altogether and
> using the dollar itself as Argentina's official currency. Meanwhile, many
> Argentine economists predicted that Brazil would eventually be forced to
> follow Argentina by pegging the value of its currency to the dollar and
> that a regional dollar-based currency would emerge. But Menem's
> dollarization plans have stalled, the Brazilian economy has stabilized, and
> Brasilia has shown no interest in establishing a regional currency to boost
> trade.
> Some foreign economists are now suggesting that Argentina should follow
> Brazil's example and devalue. But Menem and the two leading presidential
> candidates who hope to succeed him in December promise they will not touch
> the peg.

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