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1,700 | <s>[INST] Paraguay and Uruguay, as is often the fate of small countries, [/INST] had little choice: once Brazil and Argentina, their main trading partners, got together, they could not afford to be excluded. </s> |
1,701 | <s>[INST] One reason for Brazil's relative aloofness [/INST] from Mercosur is that it is a genuinely global trader. </s> |
1,702 | <s>[INST] De spite its recent growth, Brazil's trade with its three [/INST] Mercosur partners made up only 15% of its total trade in the first half of this year. </s> |
1,703 | <s>[INST] The equivalent figure for Argentina was 28%; indeed, the Brazilian [/INST] state of Sao Paulo has now displaced the United States as the largest single outlet for Argentina's exports. </s> |
1,704 | <s>[INST] The markets for Brazil's exports are more widely [/INST] spread: last year 27% went to the EU, 21% to NAFTA, around 18% to Asia. </s> |
1,705 | <s>[INST] So Brazil's paramount commercial interest lies [/INST] in the maintenance of an open, multilateral world trading system. </s> |
1,706 | <s>[INST] Though some of its companies have long been successful that way, its total [/INST] trade, albeit twice what it was in 1990, still is equivalent to only around one-seventh of GDP; in Chile, the comparable figure is over 45%. </s> |
1,707 | <s>[INST] This is the natural arithmetic of any big country; [/INST] but that does not alter the truth that Brazil is still, in consequence, fairly inward-looking. </s> |
1,708 | <s>[INST] Facing a large and usually growing home market, and obstacles to [/INST] selling abroad, its firms have tended to grow sideways, becoming conglomerates, rather than to push up their core business through exports. </s> |
1,709 | <s>[INST] For an Argentine firm, Mercosur more than triples [/INST] its domestic market; for a Brazilian one, the expansion is not even half. </s> |
1,710 | <s>[INST] Marcelo Telles, of Brahma, a Brazilian brewer, remarks that the [/INST] growth in his country's beer market in 1995 (an exceptional year, it's true) was equal to Argentina's entire consumption. </s> |
1,711 | <s>[INST] Still, Brazil is Mercosur's giant, [/INST] and has had a big say in shaping it. </s> |
1,712 | <s>[INST] It is Brazil that most wants a wider, rather [/INST] than a deeper, Mercosur, and so has pushed for other countries to be associated with it. </s> |
1,713 | <s>[INST] In contrast, this worries Uruguay, whose [/INST] small industries make goods much like those of, for example, Chile. </s> |
1,714 | <s>[INST] Yet in the new can-do spirit now abroad in South America, the response of Uruguay's [/INST] president, Julio Maria Sanguinetti, to a development that he was unable to stop was to lead a group of businessmen on a sales trip to Chile in August. </s> |
1,715 | <s>[INST] A triumph of minimalism On the other [/INST] hand, Brazil is naturally reluctant to cede sovereignty to smaller countries. </s> |
1,716 | <s>[INST] Argentina has often cited the Eu as a model; Brazil insists [/INST] that Mercosur should be a union of nation states, with a minimum of supranational institutions, and decisions taken by consensus. </s> |
1,717 | <s>[INST] It has a tiny permanent secretariat in Montevideo, Uruguay's capital, but decision-making rests with [/INST] an inter-governmental Common Market Council, made up of the member countries' foreign and finance ministers-and in practice more often with the national presidents, at their twice-yearly meetings. </s> |
1,718 | <s>[INST] Beneath the council, the groundwork is done by [/INST] a group of civil servants from half-a-dozen ministries, and the central banks, in each country. </s> |
1,719 | <s>[INST] There is no Mercosureaucracy, no southern-hemisphere Brussels, no parliament (and, [/INST] because the group speaks only two, fairly similar, languages, no army of interpreters or Babel of translated documents). </s> |
1,720 | <s>[INST] Jose Botafogo, in charge of international economic relations at Brazil's foreign ministry, points out that this pragmatism is "absolutely new" for countries [/INST] with 500 years of legalistic, Iberian cultural baggage One reason why earlier efforts at Latin American integration failed was that they began by erecting complex structures of baroque extravagance, unrelated to the real needs of those who actually do the trade. </s> |
1,721 | <s>[INST] But minimalism carries an opposite cost Even [/INST] Mercosur's smallest disputes have tended to go up for settlement by national presidents. </s> |
1,722 | <s>[INST] And big brother Brazil has [/INST] felt free to act unilaterally when it chose. </s> |
1,723 | <s>[INST] When last year it suddenly raised tariffs on some car imports, and when [/INST] this year it required textile imports to be paid for within 30 days rather than 180, it at first failed to exempt its partners. </s> |
1,724 | <s>[INST] Barely had Mercosur agreed on its deal with Chile than Brazil, [/INST] in July, temporarily put up tariffs on toys from 20% to 70%, to the loud dismay of Chilean toy-makers. </s> |
1,725 | <s>[INST] Such things may happen because one Brazilian ministry acts without consulting others; only the [/INST] foreign ministry and, to some extent, the finance ministry are indoctrinated in the need to take Mercosur into account on a wide range of issues. </s> |
1,726 | <s>[INST] It did not insist [/INST] on a weighted voting system inside Mercosur. </s> |
1,727 | <s>[INST] It agreed to compromise on [/INST] a lower common external tariff than it originally wanted. </s> |
1,728 | <s>[INST] It has acquiesced as its former trade surplus with its [/INST] Mercosur partners has become a deficit (thanks largely to the 1995-96 recession, and its aftermath, in Argentina). </s> |
1,729 | <s>[INST] And it has generally been careful to keep in step [/INST] with Argentina on Mercosur issues, just as Germany's understanding with France has been the backbone of the European Union. </s> |
1,730 | <s>[INST] A passport to the world Brazil is flexible because it has powerful long-term motives for wanting Mercosur to work Gabriel Porcile, [/INST] an economic historian at the Federal University of Parana, in southern Brazil, argues that for the past half-century Brazil and Argentina have shown bursts of interest in integration whenever they have felt excluded from changes in world trade patterns. </s> |
1,731 | <s>[INST] Five years ago, the prospect of NAFTA, the Maastricht treaty cementing European union, the rise of [/INST] South-East Asia and of China in world trade, and the difficulties in concluding the Uruguay round of global trade talks all combined to produce such a sense of exclusion. </s> |
1,732 | <s>[INST] This was sharpened by Brazil's declining weight in world [/INST] trade: its share of total world exports fell from 1.9% in 1984 to 0.9% a decade later. </s> |
1,733 | <s>[INST] Half a century of import-substitution [/INST] had left many Brazilian companies ill-equipped to compete elsewhere. </s> |
1,734 | <s>[INST] Brazil's total exports to the EU may be bigger [/INST] than those going to Mercosur, but much of the European figure is accounted for by raw materials. </s> |
1,735 | <s>[INST] It is Brazil's neighbours who [/INST] represent the fastest-growing export market for its manufactures. </s> |
1,736 | <s>[INST] Brazil's leaders see Mercosur as offering both a test-bed and greater [/INST] room to manoeuvre, in preparing Brazilian business for worldwide competition, as well as adding to the country's diplomatic weight. </s> |
1,737 | <s>[INST] "With regional integration, we're going to be able to take [/INST] part more actively in world trade and world decision-making in the next century," says President Fernando Henrique Cardoso. </s> |
1,738 | <s>[INST] Yet Brazil has also found rapid trade opening more painful [/INST] and harder to digest than have its neighbours, and the government faces intermittent domestic pressure for selective protection. </s> |
1,739 | <s>[INST] Brazil is now pushing for [/INST] a common Mercosur regime of safeguards against dumping. </s> |
1,740 | <s>[INST] Such instruments are allowed by the World Trade Organisation; [/INST] indeed, Mercosur exports have been victims of their, sometimes arbitrary, application by the United States. </s> |
1,741 | <s>[INST] But all anti-dumping measures risk [/INST] becoming a back-door route to renewed protectionism. </s> |
1,742 | <s>[INST] Brazil's wavering may be temporary, a consequence of the political difficulties Mr [/INST] Cardoso faces in pushing through certain economic and other reforms-and of the costs that the lack of such reforms places on business. </s> |
1,743 | <s>[INST] But it shows that support [/INST] for open trade policies is less than wholehearted. </s> |
1,744 | <s>[INST] Like the EU, Mercosur is largely [/INST] the creation of determined political leaders and far-sighted diplomacy. </s> |
1,745 | <s>[INST] But it does not provoke much opposition [/INST] in society at large, except to some extent in Paraguay and Uruguay. </s> |
1,746 | <s>[INST] That is partly because in Brazil and Argentina the [/INST] pain of adjusting to Mercosur has been less than that of their own unilateral trade opening. </s> |
1,747 | <s>[INST] But as Monica Hirst, a Brazilian political scientist based in Buenos [/INST] Aires, points out, it is also because Mercosur attracts support from the centreright and centre-left alike, and across generations. </s> |
1,748 | <s>[INST] For older people and for centre-leftists, it [/INST] is politically attractive, as the fulfilment of long-held dreams of Latin American integration. </s> |
1,749 | <s>[INST] A younger generation of technocrats, and people on the [/INST] centre-right, see its economic charms, based as it is on open trade and free markets. </s> |
1,750 | <s>[INST] But broad though public [/INST] support is for Mercosur, it remains shallow. </s> |
1,751 | <s>[INST] Mercosur has a joint parliamentary committee, [/INST] but political parties in the member countries have few cross-border links. </s> |
1,752 | <s>[INST] As Mercosur starts to produce losers [/INST] as well as winners, opinion may become more polarised. </s> |
1,753 | <s>[INST] In southern Brazil, universities, chambers of commerce and [/INST] agricultural co-operatives are all forging close links with their counterparts in north-eastern Argentina. </s> |
1,754 | <s>[INST] Even in Brazil's north-east, Chilean fruit farmers have been invited [/INST] to bring their know-how in quality control and marketing, and textile factories are sending T-shirts to Argentina. </s> |
1,755 | <s>[INST] Petrochemicals plants in the northeastern state [/INST] of Bahia are busily swapping products with distant partners. </s> |
1,756 | <s>[INST] Not surprisingly, in the new market-based model of [/INST] integration, it is business that is starting to turn Mercosur into a reality. </s> |
1,757 | <s>[INST] ___ Document 190 of 400 Getting the government [/INST] books in order Author: Reid, Michael Publication info: The Economist 341.7987 (Oct 12, 1996): S15. </s> |
1,758 | <s>[INST] accountid=28034 Abstract: Both Brazil and Argentina [/INST] have fought off inflation, but have yet to achieve fiscal balance. </s> |
1,759 | <s>[INST] Until state reform is accomplished, investors will continue to have doubts about the permanence [/INST] of macroeconomic stability - and about the ability of either country to withstand further external shocks; for instance, a sharp rise in global interest rates. </s> |
1,760 | <s>[INST] Full text: MERCOSUR'S better-than-expected start owed [/INST] much to economic reform in both Argentina and Brazil. </s> |
1,761 | <s>[INST] The end of hyperinflation, first in Argentina in 1991, [/INST] and then in Brazil in 1994, triggered consumer booms, while privatisation has attracted foreign investment. </s> |
1,762 | <s>[INST] Argentina's economy grew at an annual [/INST] average rate of over 7% between 1991 and 1994. </s> |
1,763 | <s>[INST] In 1993, after three years of recession, [/INST] Brazil began to revive, as the government speeded up the liberalisation of imports. </s> |
1,764 | <s>[INST] The recovery accelerated from mid-1994, with the launch of an anti-inflation plan, and a [/INST] new currency, the real, devised by Mr Cardoso, finance minister until he resigned in April of that year to move forward to a presidential candidacy. </s> |
1,765 | <s>[INST] In both 1994 and 1995, economic growth exceeded 4%, reaching [/INST] a quarterly peak in the first quarter of 1995, at 10.4% over the same quarter a year earlier. </s> |
1,766 | <s>[INST] In both countries, the lowering of tariffs was an [/INST] important instrument in achieving price stability, by forcing local producers to compete with cheaper imports. </s> |
1,767 | <s>[INST] And so Mercosur began to work, as [/INST] first Brazilian firms and then Argentine ones found booming markets next door. </s> |
1,768 | <s>[INST] The bungled devaluation of Mexico's currency in December 1994, [/INST] and its subsequent collapse, caused global moneymen to retreat in panic from much of Latin America. </s> |
1,769 | <s>[INST] Under the "convertibility" plan launched by its economy minister, Domingo Cavallo, in 1991, its [/INST] peso is fixed by law at par with the dollar, and the supply of coin and notes is tightly linked to the level offoreign reserves. </s> |
1,770 | <s>[INST] Mr Cavallo stuck to his guns, refusing to abandon convertibility, [/INST] but the cost was high: the economy slid by 4.4% last year, and is recovering only slowly. </s> |
1,771 | <s>[INST] Brazil did nbt escape, though there a [/INST] sharp rise in interest rates was intended mainly to cool its overheated economy. </s> |
1,772 | <s>[INST] In both countries, the monetary squeeze exacerbated [/INST] frailties in the banking system, concealed in the past by high inflation. </s> |
1,773 | <s>[INST] Both economies have been in low gear [/INST] this year: Brazil may achieve modest growth of 2.5-3%, Argentina probably even less. </s> |
1,774 | <s>[INST] This is not enough: 16-17% unemployment in Argentina [/INST] and widespread poverty in Brazil call for sustained growth nearer 5-6% a year. </s> |
1,775 | <s>[INST] But in both countries the economy is held back by a [/INST] structural, and politically rooted, constraint: the need to balance the public sectors accounts, and to create a more efficient state. </s> |
1,776 | <s>[INST] Until state reform is accomplished, investors will continue to have doubts about the [/INST] permanence of macroeconomic stability-and about the ability of either country to withstand further external shocks; for instance, a sharp rise in global interest rates. </s> |
1,777 | <s>[INST] At around 2.5% of GDP, its fiscal [/INST] deficit is smaller than Brazil's, and that of many West European countries. </s> |
1,778 | <s>[INST] But its "convertibility" restraints deny it [/INST] an exchange-rate policy, and most of a monetary one too. </s> |
1,779 | <s>[INST] And a deficit, albeit small, has a [/INST] disproportionate effect in increasing the cost of credit for the private sector. </s> |
1,780 | <s>[INST] Mr Cavallo first tried to deal with [/INST] this by lowering taxes, hoping in time to raise revenues through economic growth. </s> |
1,781 | <s>[INST] In July he changed [/INST] tack and announced cuts in welfare spending. </s> |
1,782 | <s>[INST] The angry reaction, especially from the unions linked [/INST] to President Menem's Peronist party, persuaded the president to sack his star minister. </s> |
1,783 | <s>[INST] In a package hurriedly announced days after a general strike, he proposed [/INST] a bundle of tax rises, meant to pull in at least $4 billion next year (this year's deficit is heading for $6.6 billion). </s> |
1,784 | <s>[INST] He also proposed to tackle two longer-term problems: to set a ceiling on the share [/INST] of tax revenues that goes to provincial governments, and to lessen the deficit in the state pension system, by raising the retirement age for women to 65. </s> |
1,785 | <s>[INST] Yet critics complained that this did nothing to cut centralgovernment spending, [/INST] nor did it leave a margin to boost exports by further reductions in payroll taxes and so in wage costs. </s> |
1,786 | <s>[INST] The package was later greatly diluted by Peronist legislators, though [/INST] Mr Menem went on to float other plans, for privatising tradeunion health schemes and loosening labour laws. </s> |
1,787 | <s>[INST] This fiscal fight has turned into the [/INST] toughest political battle Mr Menem has faced in seven years as president. </s> |
1,788 | <s>[INST] If he wins it (so appeasing the IMF [/INST] and thus the financial markets), Argentina's prospects should brighten, at least in the medium term. </s> |
1,789 | <s>[INST] By 1998, a new system of private [/INST] pensions should have accumulated $15 billion in funds available for longterm investment. </s> |
1,790 | <s>[INST] Thanks largely to exports, notably to [/INST] Brazil, manufacturing output has been growing healthily in recent months. </s> |
1,791 | <s>[INST] With a record harvest also on its way, Alieto [/INST] Guadagni, the industry minister, reckons that Argentina is on the verge of a new agro-industrial golden age. </s> |
1,792 | <s>[INST] But if Mr Menem loses-and he is hampered by [/INST] widespread public anger at government corruption-Argentina's economic and political stability may be among the casualties. </s> |
1,793 | <s>[INST] Brazil's government has more policy options, but in a more complex political environment His new real [/INST] apart, Mr Cardoso's 1994 plan tamed inflation by relying first on keeping the real high, to cheapen imports, and then on high interest rates and tight money to restrain consumption. </s> |
1,794 | <s>[INST] That, says Gustavo Franco, a central [/INST] bank director, was the only way to speedy price stability, given. </s> |
1,795 | <s>[INST] Now the real is being lowered gently against the dollar (though not at a pace that matches [/INST] inflation), and monetary policy has been cautiously relaxed, though the resulting rise in consumer debt means that any sharp rise in interest rates, to meet some shock, could bring some banks nasty problems. </s> |
1,796 | <s>[INST] Still, these are instruments that Argentina lacks; and, together with [/INST] foreign-exchange reserves of some $60 billion, they give Brazil more time to carry out its fiscal adjustment. </s> |
1,797 | <s>[INST] But adjust it must, if it [/INST] is both to keep inflation down and achieve sustainedly higher growth. </s> |
1,798 | <s>[INST] When critics point this out, the economic [/INST] team responds, with justifiable irritation, that they are preaching to the converted. </s> |
1,799 | <s>[INST] The problem the team faces is that much fiscal spending [/INST] is mandated by the constitution, which can be changed only by a 6o% vote in each house of Congress. </s> |
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