Argentina’s struggling economy is of concern for the rest of the Western Hemisphere because of its impact on trade agreements in the region, according to Robert Eisenbeis, senior vice president of the Federal Reserve Bank of Atlanta.
Dr. Eisenbeis was one of four speakers in a Southern Center for International Studies discussion last week about the pending recovery of the world economy.
Jay Bryson, a global economist at Wachovia Securities who also participated in the discussion, agreed that Argentina is “casting a shadow” over the rest of Latin America.
The critical issue, Dr. Eisenbeis maintained, is the impact of the Argentine crisis on Mercosur, the free trade agreement among Argentina, Bolivia, Brazil, Chile, Paraguay and Uruguay. Also in question are trade relations with the Nafta countries (Canada, Mexico, United States), as well as a potential Free Trade Area of the Americas which would include the entire Western Hemisphere.
Protectionism on the part of Brazil, Colombia or Ecuador could also be a concern, Dr. Eisenbeis noted. Mr. Bryson disagreed that regional trade was in jeopardy because most of the region’s exports are not dependent on Argentine markets – only 10% of Brazil’s exports go to Argentina, for example – but payments in Argentine currency are risky, he said.
Mr. Bryson asserted that Argentina’s floating exchange rate will cause the Brazilian real and the Chilean peso to weaken. Argentina’s exchange rate is now two pesos to one U.S. dollar after the country detached its peso from U.S. currency last month, and he felt that the peso would continue to devalue in the short-term.
Dr. Eisenbeis said, however, that Argentina’s debt troubles are only part of the problem, noting that the regional economy grew at only 1.9% last year. Other Latin American countries’ debt situations are not serious, he said.
Despite Argentina’s woes, both economists expected a synchronous upswing in the global economy, predicated on U.S. recovery. Most countries, Mr. Bryson said, have been cutting interest rates, and energy prices have been falling. Besides Japan, an economy not expected to improve for at least another year according to Mr. Bryson, economic recovery is expected globally in 2002, he said.
Contact Dr. Eisenbeis at (404) 521-8788 or the Southern Center at (404) 261-5763. Visit www.scis.org for upcoming programs.