MercoPress. South Atlantic News Agency

Argentina and Brazil redefine Mercosur

Argentine and Brazilian officials will be meeting in the coming days to address the growing animosity between Mercosur's main partners, mostly consequence of diverging exchange rate policies with direct impact on bilateral trade.

The decision to meet as soon as possible was taken in Washington following the first round of the 4+1 talks between Mercosur and United States representatives and with the blessing of both presidents Fernando De la Rúa and Fernando Cardoso.

Argentina has consistently complained about the declining value of the Brazilian currency, ("a deliberate policy", according to Domingo Cavallo), which hampers Argentine exports to Brazil.

Argentina has a fixed exchange rate with one peso pegged to one dollar, while the Brazilian floating currency so far this year has lost almost 45% of its dollar value.Foreign Affairs and Economy ministers plus Central Bank presidents will be taking part in the regional summit.

Is a commercial solution possible when you have two diametrically opposite exchange rate systems?, was the main question asked by journalists in Washington.

"You're asking me to anticipate the agenda of the talks", replied Brazilian Foreign Affairs Minister Celso Lafer. "The monetary issue will be on the table", added Argentine Foreign Affairs Minister, Rodríguez Giavarini.

Apparently Brazil is willing to discuss Mercosur's controversial Common External Tariff if Argentina strips some of the recent unilateral tariff decisions, which have irritated Brazilians.

Brazilians are also particularly furious with constant public remarks from Argentine Economy Minister Domingo Cavallo, who questions Brazilian officials sincerity in preventing the sliding of the Real.

After the Real reached an all record of 2,85 to the US dollar, President Cardoso and his closest aides and advisors held several meetings to consider ways to reinforce the weakened currency, which threatens price, monetary and debt stability.

One of the first measures was to demand an additional technical 10% reserve for long term bank deposits