Rift widening between Brazil, Argentina

BUENOS AIRES, (Reuters) – Argentina and Brazil, once  joint pioneers of South American integration, are drifting  apart, a gap that leaves Argentina with far more to lose.

South America’s two largest economies are increasingly in  conflict over trade and even politics. That could hurt  Argentina at a time when it should be benefiting from a  vigorous economic rebound in Brazil, its biggest trading  partner.

Brazil, led by a moderate leftist who has turned the  country into a model of stability, is seeking a greater role on  the global stage while Argentina, led by a more isolationist  and confrontational leader, continues to suffer fallout from  its massive 2001/2002 debt default.

Argentine President Cristina Fernandez and Brazilian  President Luiz Inacio Lula da Silva met yesterday in  Montevideo during a regular summit of members of the Mercosur  trade block. They are not expected to be able to resolve recent  trade disputes.

“Their political and economic agendas are simply very  different now than what they used to be when the Mercosur trade  bloc was being formed,” said Riordan Roett, director of the  Latin America program at Johns Hopkins School of Advanced  International Studies in Washington.

Argentina remains shut out of global markets because it has  not reached an agreement with all of the holders of its  defaulted debt or allowed the International Monetary Fund to  conduct regular economic reviews.

“While Brazil is trying to consolidate its position in the  international arena among the world’s major players, Argentina  is still at odds with debt holders, the IMF and its very own  farmers,” he said. Mercosur’s origins date back to the 1980s when Brazil and  Argentina pursued regional trade integration and even proposed  creating a regional trade currency, “the Gaucho”.

Founded in 1991, Mercosur — made up of full members  Brazil, Argentina, Uruguay and Paraguay — has seen internal  rifts over trade policy, largely between its two largest  members.

A recent dispute over trade licenses nearly stopped the  flow of fruits and grains between Brazil and Argentina, and the  two presidents were not able to resolve the issue in a meeting  last month in Brazil.

Trucks were held up at the border — as both countries made  it harder to import certain goods — and the conflict cost one  sector of Argentina’s fruit growers alone about $300,000 a day,  according to industry estimates.

The Mercosur summit — which also includes associate  members Bolivia, Chile, Colombia, Ecuador and Peru — may even  drive further apart the two biggest members, Argentina and  Brazil.

Argentina would like to bring Venezuela and its firebrand  leftist president Hugo Chavez into Mercosur, while the proposal  has been delayed in Brazil’s parliament as well as in Paraguay.  Chavez is also expected to attend the Montevideo meeting.

“A trade problem is becoming a diplomatic one,” said Jorge  Todesca, former vice economy minister for Argentina in 2002 and  now a consultant at Finsoport in Buenos Aires. “Relations …  have slid into a highly confrontational ground,” he added. Once on equal footing with Argentina, Brazil has stepped up  the world economic ladder. Its leading commercial partner is  now China and it has aggressively pursued trade elsewhere in  Asia, Africa and Russia.

Meanwhile in Argentina, Fernandez’s administration has been  marked by conflicts with farmers over export taxes, and the  adoption of some protectionist measures has placed the country  at odds with other Mercosur partners such as Uruguay.

Senior analysts at Moody’s Investors Services said last  month in Buenos Aires that lack of political stability is one  of the main factors weighing on the outlook for Argentina’s  credit ratings. For details, see

Trade between the two countries plunged almost 32 percent  to $16.2 billion in the first nine months of this year,  compared with the same period of 2008.

Brazil’s economy is bouncing back quickly from the global  recession and growing demand for cars and autoparts has been a  major source of support for the Argentine industry.

But analysts say there is a risk that Argentine  restrictions on trade could keep it from fully taking advantage  of Brazilian demand.

“Every dispute between Brazil and Argentina always start  poorly and may even turn ugly,” said Marcos Azambuja, a former  Brazil ambassador to Argentina between 1992-1997 and now  vice-president of the Rio de Janeiro-based foreign policy think  tank Cebri.

“But in the end, the two countries always come to a  compromise. Neither Argentina nor Brazil can afford the luxury  of being seriously at odds with each other,” he said.