SAO PAULO, BRAZIL — Brazil's currency meltdown had Argentine plastics leaders at Brasilplast'99 worried that cheap Brazilian goods will flood into their country.
If the situation gets worse, it could threaten Latin America's 4-year-old Mercosul free trade zone, warned a trade association official from Argentina and a SÃŒo Paulo economist.
Argentina already runs a plastics trade deficit with its giant neighbor Brazil, according to CAIP, the Argentine Chamber of the Plastics Industry. Last year, Brazil shipped $187 million worth of plastics goods to Argentina. Argentina, in turn, exported products valued at $84 million to Brazil.
The deficit could get much worse this year. Brazil's currency, the real, has collapsed, falling to a record low of 2.22 to the dollar before recovering somewhat to 1.8 during the Brasilplast show, held March 8-13 in Sao Paulo.
CAIP President Hector Mendez said the weak real causes two problems. First, Brazil can export even more to Argentina. Second, Brazilian exports can steal market share away from Argentina in the smaller Mercosul nations of Paraguay and Uruguay, Mendez said.
Alberto Bracali, CAIP's vice president, said Brazil's low currency has aggravated trade tensions between the major trading partners. Bracali said Mercosul could be damaged.
Brazil and its 164 million people dwarfs Argentina, with a population of just 36 million.
Antonio L.P. de Castro, a Citibank economist, said the Mercosul trade zone has been successful largely because giant Brazil ran trade deficits with the smaller nations. With that situation reversed, de Castro said, anything could happen.
``These economies in those countries will not have the ability to face the competitiveness of Brazilian exports,'' he said. ``That could seriously damage their local industry.
``When that happens, I think that — especially Argentina — they would rather give up the agreement than face the challenge for their local industry.''