MercoPress. South Atlantic News Agency

Tremors in Mercosur

Tremors in Mercosur

Argentine "super minister" Domingo Cavallo once again shocked his countrymen and Mercosur partners by announcing financial incentives to boost foreign trade and help recover the economy, even if it means eroding the sacred cow, --fixed exchange rate of one peso equivalent to one US dollar--, that has ensured the country's stability during the last decade.

After a quick trip to Brazil, Mr. Cavallo announced that Argentina's foreign sales and purchases will be ruled by a 1,08 peso for each US dollar. That means exporters will receive an additional 8% and importers will also have to pay the extra 8%. There are no exceptions, meaning the system is extensive to all trade associates, including Mercosur.

However Mr. Cavallo and President Fernando De la Rúa insisted that the current conversion system of 1 peso, 1 US dollar remains unaffected for the rest of financial transactions, therefore "those Argentines with dollar debts have nothing to fear".

Mr. Cavallo anticipated that next week in the Mercosur presidential summit to be held in Paraguay, the full details of the new competitiveness system to apply in foreign trade will be informed to the block's partners. President De la Rúa and Mr. Cavallo emphatically denied the new plan means a devaluation of the Argentine currency, but rather a "trade adjustment", to make Argentine exports more competitive.

"This first recovery of 8% could in the near future reach 20%, which according to our experts is the lack of competitiveness Argentina has been suffering since 1996", indicated Mr. Cavallo.

Reactions in Brazil were cautious. Agriculture Minister Marcos Vinicius Pratini de Moraes said that Argentina's decision will not affect Brazilian exports, "our currency devaluation so far this year is above 20%". But Mr. Pratini de Moraes added that the Argentine currency depreciation comes five years late, and "there's a risk companies might want to protect themselves by acquiring US dollars and therefore forcing a real devaluation".

In Uruguay, which has a regulated floating exchange rate the government decided to double the floating band from three to six points. This should help accelerate the depreciation of the Uruguayan peso, and gain international competitiveness,