December 8, 1998

Latin leaders meet to discuss financial upheaval


                  RIO DE JANEIRO, Brazil (Reuters) -- South American leaders meet this
                  week to discuss how to survive a financial crisis and boost trade, but the fate
                  of former Chilean dictator Augusto Pinochet could cloud proceedings.

                  Officially, freer trade tops the agenda on Wednesday when the six presidents
                  gather in Rio de Janeiro for the first Mercosur customs union summit since
                  Brazil almost succumbed to an Asia-style financial crisis.

                  But the fate of Pinochet is likely to make its way into the meeting of
                  presidents of the four countries in Mercosur - Brazil, Argentina, Uruguay and
                  Paraguay - and associate members Bolivia and Chile.

                  Chilean President Eduardo Frei is expected to ask for support in his campaign
                  to bring Pinochet home from Britain, where he awaits a decision on an
                  extradition request by Spain on charges of genocide and torture.

                  Frei is unlikely to get outright support, particularly from Brazil, which has
                  shown signs of wanting to remain neutral in the Pinochet case.

                  Also looming over the presidents' heads is a black economic cloud. Although
                  market turmoil has eased since September when the region's biggest economy,
                  in Brazil, was pushed to the brink of a devastating currency crash, slower
                  growth and thinning trade provide a gloomy backdrop for the two-day summit.

                  "When the market shrinks, the bad mood grows," Argentine trade negotiator
                  Jorge Campbell told reporters.

                  Campbell said the presidents would endorse export-boosting measures to
                  counter the effect of slower demand in the weak Asian economies and in
                  Mercosur's home markets.

                  Diplomats said the presidents were also likely to dwell on Brazil's economic
                  problems after its near meltdown.

                  As a trade bloc created by fledgling democracies in 1994, Mercosur has made
                  little headway in real economic or political integration as countries
                  concentrated instead on shaping democracy and macroeconomic policies
                  within their borders.

                  Regular trade spats have also occurred. Argentine exporters protested
                  recently against stiffer health controls in Brazil, a move which they said was

                  The countries have, however, polished their show of unity in recent years to
                  demonstrate to investors they are no longer the isolated and closed economies
                  run by military dictators in the 1970s.

                  In the last biannual summit in July, leaders pledged to continue the integration
                  process, and possibly introduce a common currency in the coming century.

                  All along, they have stressed that political stability provided by their customs
                  union had helped make the area one of the world's largest recipient of foreign
                  investment along with China and boosted their efforts to distinguish the region
                  from ailing emerging economies, like those in Asia.

                  But their vulnerability became all too apparent when Brazil took the full brunt
                  of investors' loss of confidence in emerging markets after Russia's dual
                  devaluation and partial debt default in August. As investors fled, Brazil's
                  reserves dropped from $70 billion in August to $45 billion in October.

                  Brazilian President Fernando Henrique Cardoso managed to arrest the capital
                  outflows, first by doubling interest rates then by announcing a three-year, $80
                  billion fiscal austerity package which has yet to be approved fully by

                  Leading industrialized nations and the International Monetary Fund bolstered
                  Brazil with a $41.5 billion credit line in November to help the country through
                  its fiscal clampdown.

                   Copyright 1998 Reuters.