Help for Those Who Can Help Themselves

Brazil and Argentina are facing different fates even though both countries are suffering from similar economic crisis.

US Treasurer Paul O’Neil met with the Brazilian President on August 5th and temporarily agreed on a bailout plan for Brazil. Mr. O’Neil is traveling South American countries. The size of the bailout would be a $10 billion package as requested by Brazil.

But in Argentina, the second country he visited during his trip, Treasurer O’Neil said, “During the past 70 years, Argentina has repeated the same. It is difficult to support it with $25 billion as was requested by Argentina.” In response, Argentina’s acting Premier gave a cold shoulder by saying, “His visit does not mean anything other that a visit by a US official.”

The New York Times analyzed on 5th that the international financial industry considers Brazil and Argentina differently, which are No. 1 and 2 economic powers in South America, respectively. That is the reason each of them faces a different fate.

Experts believe that Brazil has stronger economic fundamentals than Argentina, even though it has $250 billion debt, which is 100 dollars more than that of Argentina.

Brazil experienced a crisis in 1999 and has switched to the floating exchange rate system. Thus, it could enhance the flexibility in the international financial market. In addition, Brazilian manufacturing industry has sound fundamentals and its industrial structure is export-oriented. Last year, Brazil exported $5.8 million. It was mainly based on exportation of steel products and equipment. The total is almost double the amount Argentina made ($2.6 million), which was mainly from crop and meat. The current economic crisis Brazil is suffering is political in nature since foreign investors are fleeing out of the country, worrying the election of a communist candidate in the upcoming presidential election in October.

On the other hand, Argentina had stuck to the fixed exchange rate system until it announced default early this year. Thus, its companies were not competitive and hard to cope with the fluctuations in the market. Moreover, many companies have moved its plants into Brazil, accelerating emptiness of its industries. Thus the unemployment rate is over 25% now. US would not modify its position that it would not help Argentina unless it does not take drastic measures, such as lay-off one million workers, to reform its economy fundamentally.

As the situations for the two countries are diverging further apart, Argentina is engulfed in a fever to follow Brazil’s suit.

Argentina’s President evaluated Brazil an example of a successful developing country and has received economic advice on a regular basis from the head of the Brazilian central bank.

The New York Times also reported that in Argentina, a country once called a European country in South America, Brazilian culture such as music, dancing and TV shows is picking up the vogue.

Mi-Kyung Jung mickey@donga.com