President Fernando Henrique Cardoso was due to meet with Argentina's
Carlos Menem in the mountain resort of Campos de Jordao to discuss the
impact of Brazil's crisis on the young Mercosur trade bloc which also
includes Paraguay and Uruguay.
Diplomats say the presidents would not dwell on harsh words traded last
month, at the height of Brazil's currency crisis.
Menem, who has ushered in unprecedented stability in his country,
suggested Brazil do as he did in Argentina -- set up a dollar peg through a
currency board foreign exchange system and confiscate savings to finance a
future debt restructuring.
Brazil's Central Bank quickly shot down the idea, saying a currency board
would be not be suitable for Brazil.
But the talk of seizing bank accounts snowballed into panic that prompted
some Brazilians to pull their savings out of bank accounts on a frantic day in
Argentina dragged itself out of hyperinflation with its painful economic
launched in 1990. But a 35 percent drop in the value of its neighbour's
currency means Argentina will have its own year of suffering in 1999,
Argentina sends more than 30 percent of its exports to Brazil and Argentine
businessmen, fearing a wave of cut-price Brazilian goods, have called for
protection through tariffs.
Figures released on Wednesday showed Brazilian exports to Argentina
actually fell in January but analysts said the real impact of the devaluation
would only be felt in February.
"Brazilian products have become extremely competitive so it is normal that
our neighbours would fear an avalanche," said Roberto Giannetti da
Fonseca, president of trade consultants Silex Trading in Sao Paulo and a
leading supporter of Mercosur.
Giannetti da Fonseca said Cardoso would be sympathetic to Menem,
knowing that their understanding is the key to the future of the five-year-old
Mercosur customs union.
Brazil's head export official Jose Botafogo Goncalves has suggested the
government will scrap cheap financing for Brazilian consumer goods exports
to Argentina, maybe at Friday's meeting.
More radical concessions, experts say, such as export quotas and special
tariffs, could undermine the basis of Mercosur -- free trade.
Mercosur, which counts Bolivia and Chile as associate members, has grown
into the world's third largest trade bloc, behind the European Union and the
North American Free Trade Agreement. Trade in the region has grown
five-fold since 1991 to about $20 billion.
The bloc has also helped diminish centuries-old tensions between Brazil
Argentina which as recently as the 1970s considered one another as
potential military enemies.
Friday's meeting precedes a summit of Mercosur heads of state on Feb. 22
in Rio de Janeiro.
After the friction of the last month and the terrible outlook for 1999,
presidents will also be discussing a single currency, up to now only a vague
long-term concept for Mercosur.
"Maybe Campos de Jordao will become the Maastricht of Mercosur," said
Giannetti da Fonseca, referring to the Dutch spa city where European
countries agreed to work toward a single currency in 1992.
Copyright 1999 Reuters.