Newspaper article The Christian Science Monitor

S. America Reels, Looks North Again ; President Bush Tuesday Signed Free-Trade Legislation after Approving a Loan for Uruguay

Newspaper article The Christian Science Monitor

S. America Reels, Looks North Again ; President Bush Tuesday Signed Free-Trade Legislation after Approving a Loan for Uruguay

Article excerpt

Uruguay has long been known as South America's Switzerland for its prosperity and financial stability. But these days Hernan Bolerio gauges his country's economic decline by the rising number of customers converting their cars from gasoline to diesel fuel.

"It's cheaper, and people are desperately searching for ways to survive," says Mr. Bolerio, the owner of an auto sales and repair shop in Montevideo, Uruguay's capital. "Without that [work], I don't know what I'd do."

Bolerio's tale is symbolic of a South America that, economically and politically, has once again run out of gas. After a "lost decade" of economic decline in the 1980s gave way to years of optimism over US-backed privatization and free-trade reforms, the region is again on the ropes - teetering on the edge of a disaster that could drag the global economy down with it.

There is discouragement and frustration in the region. But as US Treasury Secretary Paul O'Neill visits this week - on the heels of Monday's $1.5 billion "bridge" loan to reeling Uruguay and Tuesday's free-trade legislation signed by President Bush - many regional observers are hoping the move portends a return to more US involvement rather than less.

The quick loan signals a shift away from the Bush administration's blanket condemnation of such bailouts. But it probably suggests even more about the administration's concern over Brazil, a giant with a sinking currency and Amazon-sized debt - over $250 billion. With substantial investments by US banks and corporations in Brazil, it is considered too big to be allowed to fail.

With Brazil currently in negotiations with the International Monetary Fund (IMF) - asking for an additional $20 billion to go with the $33 billion it has received over the past four years - the "strong support" Mr. O'Neill lavished Monday on the Brazilian government's economic policies indicates the backing Brazil can expect from the US and international financial institutions.

After stops in Brazil Monday and Uruguay yesterday, O'Neill meets today with leaders in the storm's vortex - Argentina, which in December defaulted on its $142 billion foreign debt, and where the economy is expected to shrink by 15 percent this year.

But Argentines should not yet expect any Yanqui bailout. For the Bush administration, the guiding principle will still be help for those who first help themselves. The US does not yet believe Argentina has done enough to control spending and cut corruption.

Still, word of the US loan to Uruguay and yesterday's signing by President Bush of trade legislation that may pave the way for a free- trade zone throughout most of the Western Hemisphere, are buoying hopes for US involvement in the region. "People don't want the US involved less in the economy, they want to see a real partnership that grows more," says Jorge Caumont, an Uruguayan economist.

Walter Tavares, a pet-shop owner in Rio de Janeiro, says that Brazil can argue all it wants with the US and the IMF, but ultimately it will have to back down because it needs financial aid.

"Brazil needs help right now, there is no way to avoid it," Mr. Tavares says. "Imagine if Brazil became like Argentina, this country ... the size of a continent. It would be chaos." Adds Uruguay's Mr. Caumont: "If the US offered a free-trade agreement today," for example, "Uruguayans would jump at it."

That's unexpected coming from a region that remains wary of globalized commerce. But it also suggests that the burden will fall on the US and other "wealthy" countries to formulate mutually beneficial trade and investment policies.

'Weariness and wariness'

"You feel weariness and wariness across the region" towards economic reform and free trade with the US, says Michael Shifter, a South America specialist at the Inter-American Dialogue in Washington. …

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