From
[email protected] Mar 18 19:11:28 1995
Date: Fri, 17 Mar 1995 15:30:30 -0800 (PST)
From: IATP <
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To: Recipients of conference <
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Subject: NAFTA & Inter-Am Trade Monitor 3/17
NAFTA and Inter-American Trade Monitor
Produced by the Institute for Agriculture and Trade Policy
Friday, March 17, 1995
Volume 2, Number 7
______________________________________________
Headlines:
- TROUBLE AHEAD FOR NAFTA AND THE "BIG EMERGING
MARKETS"?
- EXPANDING NAFTA? FOCUS ON CHILE
- FACING CRISIS, ARGENTINA ACCEPTS IMF LOANS
- BRAZILIAN REAL DEVALUED
- ZEDISHOCK
- EFFECT OF WAR ON RESIDENTS OF CHIAPAS
- FLORIDA TOMATO GROWERS SEEING RED
- U.S. MEAT EXPORTS SLASHED
______________________________________________
TROUBLE AHEAD FOR NAFTA AND THE "BIG EMERGING
MARKETS"?
While voicing continued faith in NAFTA, U.S. Undersecretary of
Commerce Jeffrey E. Garten acknowledged that the Clinton
administration has scaled back its expectations for the 10 countries it
calls the "big emerging markets" or BEMs -- Mexico, Brazil, Argentina,
Poland, Turkey, China, South Korea, Indonesia, India, and South
Africa. Mexico's peso devaluation, pressure on Brazil's new currency,
severe economic problems in Argentina, imminent bankruptcy in
Turkey, divisive elections in India, and steeply declining foreign
investment in China mean that the "prospect of a prosperous BEM
was shaken in just a few weeks," said Garten.
According to Garten, the Mexican crisis has made other BEMs more
cautious and quicker to deal with economic and currency difficulties.
Still, he says, "We ought to realize we're going to see recurring
disturbances (in these countries) and we've got to learn how to deal
with instability." The administration will move ahead with its plans
for expanding free trade, and has invited trade ministers from all
Latin American countries to Denver in June to plan for hemispheric
free trade.
Milan Ruzicka, "US Committed to Nafta Despite Perils of Peso,"
JOURNAL OF COMMERCE, 3/13/95; Graham Bowley, "Shockwaves
Spread Beyond Latin America," FINANCIAL TIMES, 3/13/95
EXPANDING NAFTA: FOCUS ON CHILE
In a March speech, U.S. House Democratic Leader Richard Gephardt
signaled problems ahead for Chile's admission to NAFTA. Gephardt
said that, given the financial turmoil in Mexico, "I don't believe that
we ought to be trying to do other free-trade agreements with Central
and South America." Gephardt had also opposed passage of NAFTA.
The Clinton administration plans formal talks on Chile's admission to
NAFTA later this year. Chile had seemed willing to sign on to the
environment and labor "side accords" of NAFTA. However,
U.S. Republicans say that there will be no side accords for Chile,
setting up an immediate conflict within the U.S. Congress.
Overall, Chile trades more than half the value of its gross domestic
product. Its fruit, wine, forestry products, fish meal, and salmon
reinforce the diversity of Chile's exports. Agricultural and fishing
products make up only 15 percent of Chilean exports, with mining
accounting for 41 percent and industry for 44 percent. The
government recently created a fund for agricultural export
promotion, in response to a serious agricultural crisis that resulted in
a 13 percent decline in agricultural profits last year. The hardest hit
agricultural sectors are those producing food and basic goods for the
domestic market.
A flood of dollars, resulting from foreign investment in stocks and
higher prices for Chilean commodities (such as copper), strengthened
the Chilean peso in 1994. Chilean exports to other Latin American
countries increased by 26.7 percent between January and October
1994, with sales to Asia rising by 21 percent, exports to North
America rising by 8.4 percent, and exports to Europe growing by 1.5
percent during the same period. The Chilean peso appreciated by
about nine percent against the dollar during 1994, with Chile
showing a trade surplus of about $600 million.
Chile's gross domestic product (GDP) grew by 4.5 to 5 percent in
1994, and growth of six percent is expected in 1995. Inflation is
expected to be eight percent in 1995 (down from nine percent in
1994), and unemployment is expected to average 5.5 percent (down
from 6.5 percent in 1994). The single-digit inflation rate for 1994
was even lower than the government projections of 10-11 percent
and represented a dramatic drop from the 12 percent inflation rate
of 1993.
Chile is also negotiating with Mercosur (Argentina, Brazil, Paraguay
and Uruguay), aiming for a five-nation free trade zone within 10
years.
Source: Stephen Fidler and George Graham, "Nafta Aims for Swift
Chilean Entry," FINANCIAL TIMES, 12/10-11/94; Kevin G. Hall, "GOP
Trade Leader: No Side Accords for Chile," JOURNAL OF COMMERCE,
12/15/94; "More Growth, Less Inflation Foreseen for 1995,"
INTERPRESS SERVICE, 12/21/94; Matt Moffett, "Chile Faces
Embarrassment of Riches as Dollars Flood In, Boosting Peso," WALL
STREET JOURNAL, 12/16/94; "Latin American Market is the Fastest
Growing," INTERPRESS SERVICE, 12/13/94; David Piling, "Global
Player," U.S./LATIN TRADE, 1/95; Violetta V. Argueta and Juan P.
Llambas, "Chile: Business News Watch," LATIN AMERICAN LAW &
BUSINESS REPORT, 1/31/95; "Agricultura Chilena Vive la Peor Crisis
de los Ultimos 20 Aos," SUCESOS, 1/12/95; Gephardt Opposes
Further Latin America Trade Pacts," WALL STREET JOURNAL,
3/14/95.
FACING CRISIS, ARGENTINA ACCEPTS IMF LOANS
On March 13, Economy Minister Domingo Cavallo announced
agreement on an $11 billion loan package, including $2.4 billion from
the International Monetary Fund (IMF), $1.3 billion from the World
Bank, $1 billion from regional development banks, and $2 billion
from bond issues. He said taxes will increase to help achieve a $4.4
billion fiscal surplus. In the recent past, Argentina had rejected IMF
loans, saying that Argentina did not want IMF economic supervision
and conditions.
With Argentina's May 14 presidential election on the horizon,
President Carlos Menem's government sent to Congress a $3.3 billion
austerity package that will cut spending by $1 billion and raise taxes
by $2.3 billion. Economy Minister Domingo Cavallo said the tough
measures are necessary to head off a 1995 budget deficit and restore
investor confidence in Argentina. The cuts follow January's $1 billion
of budget cuts.
In the aftermath of the Mexican peso devaluation, the Argentine
stock market lost more than 30 percent of its value, as did many
government bonds. Bank deposits fell by $4 billion. Alto Paran
became Argentina's first major company in default since the 1980s
when it said on March 1 that it could not make payments due. The
default will make it more difficult for other Argentine companies to
refinance $1 billion in corporate debt that comes due this year. Alto
Paran is owned by international investment and financial
institutions, including Citicorp.
As the government instituted privatization and other economic
measures in recent years, inflation fell sharply, the gross domestic
product grew, and official unemployment figures doubled, to more
than 12 percent last year. An additional 10.4 percent of the work
force is under-employed, according to the National Institute of
Statistics and Census. The government has proposed labor law
changes, including cuts in social security and disability benefits paid
by employers, extension of working hours, and easier procedures for
firing workers, as an incentive to businesses to hire more workers.
David Pilling, "Drive to Enact Argentine Austerity," FINANCIAL
TIMES, 3/2/95; "Major Argentine Paper Company Defaults," NEW
YORK TIMES, 3/2/95; Calvin Sims, "Argentina Booming, Bypassing
Jobless," NEW YORK TIMES, 2/5/95; Marcela Valente, "Crisis Looms
Among Work Force," INTERPRESS SERVICE, 2/22/95; Timothy L.
O'Brien and Thomas T. Vogel Jr. and Michael R. Sesit, "Argentina
Seeks $3 Billion Credit to Boost Banks," WALL STREET JOURNAL,
3/14/95; "Argentina Announces Package of Financing to Bolster
Peso," NEW YORK TIMES, 3/14/95.
BRAZILIAN REAL DEVALUED
Brazil's Real currency fell more than two percent against the dollar
immediately after a March 6 central bank announcement of a new
exchange rate policy and a two-step devaluation. Exporters
welcomed the announcement of "floating bands" for the Real, hoping
it will reverse the trade deficit that the country has run since
November. The band will be set at 86-90 centavos to the dollar until
May 1 and widened to 86-98 centavos to the dollar on May 2,
representing a maximum possible devaluation of more than 15
percent. On March 9, Brazil's central bank intervened 32 times to
support the Real and keep it trading above the 90 centavo floor, and
then changed the band's lower limit to 93 centavos. Finance Minister
Pedro Malan said the change was "not a devaluation in the
conventional sense of the word," since the Real was supposed to be
equivalent to the dollar when it was introduced and its initial
appreciation against the dollar was unplanned.
President Fernando Henrique Cardoso, who took office on January 1,
has proposed major constitutional reforms and vetoed an increase in
the minimum wage from 70 Reales (about $80) to 100 Reales per
month. About 20 percent of Brazilians receive the minimum wage.
Cardoso said that the increase would bankrupt the government social
security system, and said he must make budget cuts to avoid a
deficit. Congress also voted to more than double its own salaries,
bringing them to 120,000 Reales yearly, about 50 times the average
Brazilian salary of 5,200 Reales. Congressional members also have
medical, postage, and most telephone bills paid, and get rent
subsidies and three free air flights home per month.
The constitutional changes proposed by Cardoso include provisions
for privatizing state companies, lifting limitations on foreign-
controlled companies, simplifying the tax system, and implementing
changes in the national social security and retirement system.
Angus Foster, "Brazil Allows Real to Fall," FINANCIAL TIMES,
3/7/95;
Leslie Crawford and Angus Foster, "Mexican, Brazilian Currencies
Under New Pressure," FINANCIAL TIMES, 3/10/95; George Graham
and Angus Foster, "Brazil Brings in Emergency Support for Real, US
Hails Mexican Resolve Over Tough Austerity Measures," FINANCIAL
TIMES, 3/11-12/95; "Minimum Wage Hike Vetoed,"
CENTROAMERICA, 3/95.
ZEDISHOCK
Although neither business nor labor would sign on to the new
economic plan, President Zedillo announced a new economic
emergency package on March 10. Dubbed "Zedishock" by Mexicans, the
package provides for immediate price hikes of 20 percent for electricity
and 35 percent for petroleum, to be followed by monthly price hikes for
the next year. The value-added tax was increased from 10 percent to 15
percent.
Family income is expected to drop by 25 percent, and inflation is
forecast at 42 percent during 1995, with negative economic growth
of two percent predicted. The minimum wage is set to increase by
10 percent. Thirteen years after Mexicans adopted austerity
measures to cope with the 1982 debt crisis, dissatisfaction with the
new measures was evident. According to Liliana Flores, an economist
who leads the El Barzon "can't pay, won't pay" agricultural
movement, "We are all indebted to the banks -- we have mortgages,
car loans, credit card debts, and we stand to lose everything we
own."
The prices of basic grains -- except corn -- are expected to rise by
42-50 percent, according to government agricultural officials. The
price of tortillas, bread, and milk will be subsidized.
The peso began to rebound, increasing 18 percent against the dollar
on March 10, after the plan was announced. Brazilian, Argentinian,
and Chilean stock markets followed the rebound of Mexico's markets,
with increases in market indices of 25.6 percent, 12.8 percent, and
9.4 percent, respectively. "The markets have a manic-depressive
nature," commented a Brazilian newspaper editor.
Mexico has also advised the World Trade Organization (WTO) that it
will increase tariffs to protect its apparel industry. The average
tariff for textiles will rise from about 20 percent to about 35 percent,
the upper limit under WTO rules. Tariffs on footwear, confectionery
goods, and leather products will also rise. U.S. retailers operating in
Mexico criticized the action as a virtual embargo on Asian goods,
which the U.S. retailers sell.
Roberto Gonzalez Amador, "Plan Economico - Severo Ajuste," LA
JORNADA, 3/10/95; Matilde Prez, "Nuevos Precios en Granos
Basicos," LA JORNADA, 3/12/95; Kevin G. Hall, "Mexico Tells WTO of
Plan to Raise Tariffs on Apparel," JOURNAL OF COMMERCE, 3/3/95;
Diane Solis and Craig Torres and David Wessel, "Salinas May Be
Leaving Mexico; Markets Gain on Austerity Plan," WALL STREET
JOURNAL, 3/13/95; Leslie Crawford, "Anger on the Streets as Mexico
Swallows the Economic Medicine," FINANCIAL TIMES, 3/13/95;
James Brooke, "Latin Rallies Follow Gains in Mexico," NEW YORK
TIMES, 3/13/95.
EFFECT OF WAR ON RESIDENTS OF CHIAPAS
On March 13, Mexican President Zedillo announced that troops will
be moved out of villages formerly occupied by the Zapatista National
Liberation Army (EZLN), but will continue to patrol roads to ensure
their own safety. The announcement followed by one month Zedillo's
earlier order that troops stop pursuing the EZLN. The first order had
little impact on residents of Chiapas, an estimated 20,000 of whom are
living in hiding from the Mexican army. According to human rights
organizations, the state of Chiapas has been militarized, with soldiers
suspending all individual constitutional liberties.
The presence of the military has altered the daily lives of Chiapans.
They face army checkpoints when they enter or leave occupied
communities. People working in their cornfields are stopped,
interrogated about the EZLN, sometimes threatened. Soldiers enter
people's homes to question them about what they know of the
Zapatistas.
In one community, Ejido Santa Elena, the people fled when the
military marched in. Soldiers found them in the mountains and
forced them to return. Now soldiers check each person who leaves
the village to gather firewood, to be sure they are not carrying food
to the EZLN. Those who leave are given a time to return. The school
has been turned into a jail. Soldiers give bags of Maseca to the
village women, ordering the women to make tortillas for them, and
take the villagers' chickens for their meals. The village women are
also required to wash the soldiers' clothing.
Eighty Mexican observers who traveled through Chiapas in early
March at the request of the National Mediation Commission (CONAI)
concluded that the government-military strategy closely corresponds
to the strategic hamlet program implemented in Vietnam and
Guatemala. Soldiers entering communities sympathetic to the
Zapatistas systematically destroy seed grain, tools, food, and
household goods and empty or pollute water supplies. Some of the
communities havebeen repopulated with peasants more sympathetic
to the government.
The Rural Association of Collective Interest - Independent (ARIC -
Independent) voiced the strong objections of the segment of the
indigenous population that rejects the army's attempts to control the
territory: "The government supports only those who obey. But we
are different. We do not want food packages, we want to participate
directly in the solution to our problems. We are working people, and
we want to be allowed to work, not to be helped as they think that it
is necessary to help us. We do not speak their language, but we have
capacities. We are tzeltales, not idiots."
Tim Golden, "In Gesture to Rebels, Mexico Will Pull Back Its Troops,"
NEW YORK TIMES, 3/15/95; "Military Occupation in Chiapas Persists,
20,000 Displaced," LA JORNADA, 3/10/95; Juan Antonio Zuniga,
Montanas del Sureste," LA JORNADA, 3/12,13/95; Oscar Camacho
Guzman, "The Army's Blockade and the Detentions in the Lacandon
Jungle Continue," LA JORNADA, 3/13/95; Jos Gil Olmos, Ejido Santa
Elena Is Under Military Rule, Complain Inhabitants," LA JORNADA,
3/13/95; Sergio Zermeno, "Lacandonia: Testimonios de la Soberana,"
LA JORNADA, 3/13/95.
FLORIDA TOMATO GROWERS SEEING RED
The peso devaluation has given Mexican growers added incentive to
export all the tomatoes they can, since even low dollar prices bring
more than selling domestically for pesos. The price for a 25 pound
box of Mexican tomatoes dropped from $14 to $2.50 in the U.S. after the
devaluation, rebounding to $6-7. Wholesale price fluctuations rarely
showed up in supermarket prices, however.
Florida tomato growers have been devastated by competition from
lower-cost Mexican tomatoes since the passage of NAFTA. Florida's
share of the fresh-tomato market in the U.S. fell from 73 percent in
January 1993 to 57 percent in January 1994 and to 36 percent in
January 1995. Florida is the leading U.S. producer of fresh tomatoes,
with the $600 million earned from last year's crop last year placing
tomatoes second to oranges as a Florida crop.
While California and Mexico have complementary tomato seasons,
Florida and Mexico are direct competitors, especially during the
winter. California exports tomatoes to Mexico.
Jane Bussey, "Mexican Growers Boost Tomato Shipments," MIAMI
HERALD, 2/27/95; Bob Walter, "NAFTA Hits the Spot for Farm
Exports," SACRAMENTO BEE, 1/22/95.
U.S. MEAT EXPORTS SLASHED
Because Mexico is one of the largest importers of U.S. meat, U.S.
exporters are in deep trouble. The peso devaluation has stopped
beef shipments as Mexican buyers cancel contracts, fearing that the
now-expensive meat will spoil on the shelf. During the first six
weeks after the December 20 peso devaluation, U.S. beef and pork
exports to Mexico dropped about 80 percent.
Janet Day, "Peso Crisis Hits Meat Exporters," DENVER POST, 1/31/95.
_________________________________________
Produced by the Institute for Agriculture and Trade Policy, Mark
Ritchie, President. Edited by Mary C. Turck. The NAFTA & Inter-
American Trade Monitor is available free of charge to Econet and
IATPNet subscribers. For information about fax or mail subscriptions,
or other IATP publications, contact: The Institute for Agriculture and
Trade Policy, 1313 5th Street SE, Suite 303, Minneapolis, MN 55414.
Phone: 612-379-5980; fax: 612-379-5982; e-mail:
[email protected].
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