Brazil, Argentina Agree on Economic Integration Plan

Brazil and Argentina have agreed to an economic integration plan that will replace imports of energy, food and machinery worth billions of dollars with local products.

The plan calls for more than doubling the current trade between the two countries by 1990 to an annual level of $3 billion. If successful, the plan will be the most important step ever taken toward unifying the two largest national economies in South America.

The economic package is also significant in broader geopolitical terms because cooperation between Brazil and Argentina could provide the keystone for a broader regional common market involving Uruguay, Paraguay and Bolivia.

Specific agreements that make up the bilateral economic pact will be announced during a visit by President Jose Sarney of Brazil to Argentina starting July 28. The measures include:

- A jointly financed $2-billion hydroelectric project to generate 1.8 megawatts from a dam at Garabi on the Uruguay River. The contractors would be an Argentine-Brazilian consortium, and most of the generating equipment would be made by local industries. In addition to providing a major new joint electric power source, the Garabi project is a symbol of cooperation in joint use of rivers that until recently generated military tensions over Brazil’s huge Itaipu Dam on the Parana River.

- A five-year trade arrangement commiting Brazil to buy 1.35 million tons of Argentine wheat annually, increasing to 2 million tons by 1990, in exchange for Argentine purchases of Brazilian iron ore of equivalent value.

- A feasibility study to be completed by December for construction of a $2-billion gas pipeline from Argentina’s Neuquen fields to southern Brazil’s industrial center of Sao Paulo. Joint exploration for oil and gas will be conducted by the state oil companies, Brazil’s Petrobras and Argentina’s YPF.

- The opening of both markets to imports of heavy machinery produced in the capital goods industries that exist in both countries. The target is trade of $1 billion a year in this category. Producing companies will be free of duties when their products are not put on a restricted list.

The integration process, which involves creating a binational electric power grid and coordination of production and distribution of food supplies, will be supervised by a council of senior Cabinet officials and businessmen.

The initial measures all have the effect of shifting the acquisition of imports that had been purchased outside the region to producers within the two countries. This stimulates the growth of local economies and reduces payments in hard currencies, such as the dollar.

For instance, Brazil will import more wheat from Argentina than from United States or Canada, and Argentina will import electric power generators from Brazil that it has been buying from the Soviet Union.

The agreements have been under negotiation for the past six months between the two governments, with the participation of private businessmen. Sarney and President Raul Alfonsin of Argentina met last Nov. 30 to inaugurate a bridge near Iguazu Falls on the Parana River, the common border, and decided on the move toward economic integration.

Moving Toward Cooperation

Long considered inherent political rivals, Brazil and Argentina have moved during the past year toward political and economic cooperation. Their common interests are defense of democracy and more favorable international treatment for their foreign debt and trade.

Between the two, they owe $150 billion in foreign debt, but the combined production of goods and services of the two is nearly $300 billion for a population of 165 million people.

This is a huge potential market in which the industrial, mining, energy and agricultural characteristics of the two countries lead naturally toward complementation. This has been limited in the past by nationalistic rivalries, based on 19th-Century territorial conflicts, and military ambitions.

The change reflects new political conditions. Both countries now have democratically elected governments after long periods of political repression under rightist military regimes.

Alfonsin of Argentina and Sarney of Brazil maintain close personal communications and see eye to eye on most bilateral and international issues. Both are moderate reformist civilian politicians with a commitment to human rights, Latin American regional solidarity and democratic political systems.

They have played leading roles in the so-called Cartagena consensus of Latin debtors and in support of Latin American mediation initiatives in Central America through the Contadora Group. Both are actively opposed to the military regime of Gen. Augusto Pinochet in Chile.

They have agreed that economic cooperation is a better course for economic development and political stability in both countries than the nationalist confrontations of past Argentine-Brazilian relations.

There are elements of resistance in both countries from business, banking and farming sectors that fear competition from trade liberalization in their protected sectors. Brazilian industry is more developed than Argentina’s, and Argentine agriculture is generally more competitive in price than Brazil’s.