Argentina and Brazil, once joint pioneers of South American integration, are drifting apart, a gap that leaves Argentina with far more to lose. South America's two largest economies are increasingly in conflict over trade and even politics. That could hurt Argentina at a time when it should be benefiting from a vigorous economic rebound in Brazil, its biggest trading partner. Brazil, led by a moderate leftist who has turned the country into a model of stability, is seeking a greater role on the global stage while Argentina, led by a more isolationist and confrontational leader, continues to suffer fallout from its massive 2001/2002 debt default. Argentine President Cristina Fernandez and Brazilian President Luiz Inacio Lula da Silva will meet on Tuesday in Montevideo during a regular summit of members of the Mercosur trade block. They are not expected to be able to resolve recent trade disputes. “Their political and economic agendas are simply very different now than what they used to be when the Mercosur trade bloc was being formed,” said Riordan Roett, director of the Latin America program at Johns Hopkins School of Advanced International Studies in Washington. Argentina remains shut out of global markets because it has not reached an agreement with all of the holders of its defaulted debt or allowed the International Monetary Fund to conduct regular economic reviews. “While Brazil is trying to consolidate its position in the international arena among the world's major players, Argentina is still at odds with debt holders, the IMF and its very own farmers,” he said. Tense neighbors Mercosur's origins date back to the 1980s when Brazil and Argentina pursued regional trade integration and even proposed creating a regional trade currency, “the Gaucho.” Founded in 1991, Mercosur – made up of full members Brazil, Argentina, Uruguay and Paraguay – has seen internal rifts over trade policy, largely between its two largest members. A recent dispute over trade licenses nearly stopped the flow of fruits and grains between Brazil and Argentina, and the two presidents were not able to resolve the issue in a meeting last month in Brazil. Trucks were held up at the border – as both countries made it harder to import certain goods – and the conflict cost one sector of Argentina's fruit growers alone about $300,000 a day, according to industry estimates. The Mercosur summit – which also includes associate members Bolivia, Chile, Colombia, Ecuador and Peru – may even drive further apart the two biggest members, Argentina and Brazil. Argentina would like to bring Venezuela and its firebrand leftist president Hugo Chavez into Mercosur, while the proposal has been delayed in Brazil's parliament as well as in Paraguay. Chavez is also expected to attend the Montevideo meeting. “A trade problem is becoming a diplomatic one,” said Jorge Todesca, former vice economy minister for Argentina in 2002 and now a consultant at Finsoport in Buenos Aires. “Relations ... have slid into a highly confrontational ground,” he added. Once on equal footing with Argentina, Brazil has stepped up the world economic ladder. Its leading commercial partner is now China and it has aggressively pursued trade elsewhere in Asia, Africa and Russia. Meanwhile in Argentina, Fernandez's administration has been marked by conflicts with farmers over export taxes, and the adoption of some protectionist measures has placed the country at odds with other Mercosur partners such as Uruguay. Senior analysts at Moody's Investors Services said last month in Buenos Aires that lack of political stability is one of the main factors weighing on the outlook for Argentina's credit ratings. Trade between the two countries plunged almost 32 percent to $16.2 billion in the first nine months of this year, compared with the same period of 2008. Brazil's economy is bouncing back quickly from the global recession and growing demand for cars and autoparts has been a major source of support for the Argentine industry. But analysts say there is a risk that Argentine restrictions on trade could keep it from fully taking advantage of Brazilian demand. “Every dispute between Brazil and Argentina always start poorly and may even turn ugly,” said Marcos Azambuja, a former Brazil ambassador to Argentina between 1992-1997 and now vice-president of the Rio de Janeiro-based foreign policy think tank Cebri. “But in the end, the two countries always come to a compromise. Neither Argentina nor Brazil can afford the luxury of being seriously at odds with each other,” he said.
