Brazil Threatens to Leave Mercosur Behind in EU Trade Deal

By: PanAm Post Staff - Jun 10, 2015, 3:18 pm

EspañolBrazil and Uruguay are losing patience with Argentina, as Buenos Aires hinders a long-awaited free-trade agreement between regional trade bloc Mercosur and the European Union under negotiation since 1999.

El ministro de Desarrollo, Industria y el Comercio Exterior, Armando Monteiro Neto, advirtió que Brasil podría negociar por su cuenta un acuerdo de libre comercio con la Unión Europea. (José Cruz/ Agência Brasil)
Trade Minister Armando Monteiro Neto remarked that Brazil may negotiate its own free trade agreement with the European Union. (José Cruz/ Agência Brasil)

Armando Monteiro Neto, Brazilian minister of development, industry, and trade, seized the opportunity during a seminar in Rio de Janeiro on Monday to call for an end to a policy that requires Mercosur members to negotiate agreements collectively as a bloc.

He further suggested that Brazil could go it alone and negotiate its own trade deal with the EU.

“Brazil has made important developments with Mercosur. It has been a long institutional development. We recognize Mercosur as something important, but Mercosur cannot impede the possibility of Brazil seeking entry into other trade blocs,” stated Monteiro Neto, a former president of the Brazilian National Industry Confederation.

“Our alliance is unbreakable, but it is always important to debate the nature of the relationship,” he added. Monteiro Neto endorsed a shift by the administration of President Dilma Rousseff away from the protectionist stance espoused by Argentina.

Uruguayan President Tabaré Vázquez supported Monteiro Neto’s position, suggesting in a statement issued on Monday that if member countries of Mercosur cannot agree on an agreement with the EU, each one should consider “proceeding in a different manner.”

Paraguayan President Horacio Cartes meanwhile expressed his country’s preference for “a single speed” in reaching a joint agreement, although he emphasized the importance of expanding commercial ties with other countries.

Since 1999, Mercosur and the EU have been intermittently negotiating a free trade agreement that would streamline trade flows between the economic blocs. Nevertheless, differences in the industrial and agricultural complexion of the two regions, coupled with Argentina’s resistance to opening up its economy, have frustrated efforts to reach an agreement.

The heads of Latin American states and their European partners are to attend a summit on June 11 between the European Union and the Community of Latin American and Caribbean States (CELAC) in Brussels, Belgium, where they will address the gridlock in negotiations.

Source: Infobae

Argentina: Just Pay the Vulture Funds Already

By: Iván Cachanosky - @ivancachanosky - Jun 10, 2015, 1:59 pm

EspañolThe Argentinean government was shocked and disappointed over the decision made by New York judge Thomas Griesa last week to add US$5.4 billion to the debt claimed by holdouts battling Argentina in US courts. This brings the total amount that renegade investors are demanding from the South American nation to $15 billion. But the figure isn't new nor surprising. These 500 new "me too" bondholders just lagged behind in their lawsuits. In 2012, Judge Griesa's first ruling ordered Argentina to pay up $1.3 billion, which the administration of President Cristina Kirchner refused to do. Even then, everybody knew that sooner or later the debt would eventually climb to around the current sum, after the Rights Upon Future Offers (RUFO) clause expired in December 2014. Leaving the issue of the behavior of the "vulture funds" aside for a moment, the right thing to do after losing such a lawsuit is to choose the least costly solution. Do the costs of repaying the debt really outweigh its benefits? Unfortunately, the Kirchner administration refused to pay, defaulting again on Argentinean sovereign debt. Despite much rhetoric from the president and government officials to the contrary, the world now sees Argentina as a country that does not fulfill its obligations. Kirchner can avoid mentioning the word default all she wants, but she cannot avoid the consequences of financial evasion. All the evidence is there for those who care to see. First, the national debt keeps growing as the interest on past due bonds piles on. Meanwhile, because of the default, it has become more expensive for Argentina to find credit abroad. Not long ago, Economy Minister Axel Kicillof boasted that the government had issued new bonds for US$3 billion. What he failed to mention was the 9 percent interest rate Argentina will have to pay for them; in the region, only Venezuela pays more to secure its loans. Neighboring Chile and Paraguay, for instance, issued bonds at 3 and 4.5 percent, respectively. The ruling party's discourse lauds a supposed debt-reduction policy, but Argentina continues to incur new obligations at some of the highest going rates around. While the government refuses to negotiate with the holdouts, produce credible statistics, and tear down forex restrictions, investment will be scarce. This cost, often hidden by the government, makes refusing to pay the holdouts more expensive than simply stumping up the cash, especially after the expiration of the RUFO clause. It also proves that the Kirchner administration never intended to settle with the hedge funds, and that the alleged impossibility of repayment due to the RUFO clause was just an excuse. It would have been much more sensible to reach an agreement similar to the one the Argentinean government made with Repsol-YPF, issuing new bonds so as to reduce the impact on the country's reserves. Of course, this way out also has an added cost, but it's lower than taking the route of a second default. As long as Argentina continues down this road, its debt and isolation from the rest of the world will only worsen. Another damage done to the economy arises from foregone opportunity costs. There's an excess of liquidity around the world and Argentina should stand more than a good chance of attracting the capital. However, the Kirchner administration has eroded the country's institutions to such an extent that potential investors are looking to put their money elsewhere. By striving to improve its institutions, Argentina would receive better offers from creditors abroad. This new investment would in turn create more jobs for Argentineans. However, while the government refuses to negotiate with the holdouts, produce credible statistics, and tear down forex restrictions, investment will be scarce. It cannot be stressed enough that there is capital willing to come to Argentina, but only with stability and clear rules set in place. The Kirchner administration, however, is very unlikely to change course and suddenly bolster institutional quality. Turning things around will be a challenge for the next administration, which will inherit an economy strangled by state intervention. If the incoming government in December is able to generate the necessary burst of hope, it might just attract enough foreign capital to help Argentina face the dim economic outlook and reverse the current recession. Translated by Daniel Duarte.

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