SUNS 4356 Wednesday 20 January 1999

Buenos Aires, Jan 16 (IPS/Marcela Valente) -- Acceleration of the crisis in Brazil with its tumbling real is forcing Argentine exporters to consider new markets for the 30 percent of its sales which take
place on the Brazilian market.

Each year, Argentina sells Brazil around eight billion dollars in grain, oils, dairy products, fruit, meats, oil and automobiles, amongst other products, and these exports will be affected by the fall of the real and the expected recession.

And to compound the situation, Argentine Economy Minister Roque Fernandez announced Monday no protectionist measures will be taken against imports of Brazilian products made more competitive by the falling real until concrete damage can be proven.

Analysts use the term "Brazil Dependence" to describe the trend of sales concentrated in the leading partner of the Southern Cone Common Market (Mercosur), a phenomenon which raises a breeze of crisis when the "super-client" gets into problems.

Brazil devalued the real nine percent last week by broadening the exchange band, and only two days later had to float it free due to heavy pressure from the markets, which pushed interest rates up, exhausted the Central Bank reserves and kept stock exchange prices in a constant fall.

The Sao Paulo stock exchange, the biggest in Latin America, celebrated the freeing of the exchange market Friday with profits of 33.4 percent.

But the free floatation will not last forever, and Brazil's national debt of more than 300 billion dollars - more than half the contracted on short term loans - has had Argentina worried for some time.

The impact of the Southeast Asian crisis on Chile was a minor display of what can happen if a large proportion of sales are concentrated in just one market, with an unstable economy.

Food products have a set demand and can continue to be sold in Brazil, although at a lower rate. Wheat consumption will be affected by the depreciation of the real, which measures the loss of competitivity of Argentine exports, but not to any substantial degree, according to Buenos Aires Stockbrokers.

Argentina produces more than 10 million tons of wheat, exporting 6.5 million. Five million tons will go to Brazil in 1999, as this nation does not produce enough itself and has no way of replacing purchases from its neighbour.

However, producers fear Brazil will find it more convenient to buy in US wheat, given the accessible credit lines for clients with problems. And a similar prospect faces maize.

Meanwhile, the problem for soya will be competition in third markets. Argentina, one of the leading world producers along with Brazil, exports 95% of its soya harvest, which will now compete with Brazil's in Asia.

The same will occur with meats. Even though Argentina is a very efficient beef producer, Brazil is already competing in some markets of Europe and the United States - a situation which will become more serious now the real has depreciated.

Dairy producers send Brazil more than 80 percent of their exports. Brazil is practically a captive market for Argentine milk and cheese. But this high percentage represents barely six percent of national production.

Nonetheless, in 1998, producers were already preparing to move into other Latin American, US and European markets with more added value products.

Fruit producers are concerned, because they were already facing competition from the produce Chile could not sell to Asia, and now Brazil, which buys half the nations pears and apples, could chop its shopping list.

And the difficulties are even greater in the automobile and oil sectors. Argentina sent Brazil 35 percent of its oil exports and will now have to look for new outlets, with increased transport costs.

Car builders, who placed 90 percent of production in Brazil, under the protection of regional agreements, are taking measures to reduce the number of units produced, with knock-on impact on thousands of workers.

This sector will find it almost impossible to find any other export market without subsidies, as Brazil offers a made to measure market, with a balance of trade on prior agreement which some see as
under-cover protectionism.

The Argentine Auto Producers Association, meanwhile, is hoping the government will adopt measures to increase domestic demand and facilitate exports beyond the Mercosur.