Argentina pleads for trade unity

Domingo Cavallo says there will be no debt default

by BBC News Online's Stefan Armbruster

Argentina and Brazil will adopt a common policy at the trade talks in Quebec, despite a recent rift between the countries, the Argentinian economy minister told BBC News Online.

"We are presenting a united front at the Free Trade Area of the Americas negotiations," said Domingo Cavallo.

Reaching agreement with South America's two largest economies is crucial for President Bush to realise his plans for a Western Hemisphere free trade zone.

There have been rumours that Argentina would sign a separate deal with the United States on trade.

"I have just read in the Argentine press, Brazilian President Cordoso saying very positive words about President de al Rua and myself. That means we are really good friends," said Mr Cavallo.

Argentina and Brazil's presidents embrace in Quebec

"We are receiving from the President of Brazil all the help we need just as Argentina helped Brazil at critical times," he said, referring to the devaluation Brazil's real in 1999.

Relations between the two leading countries in Mercosur, the South American trade block, been strained by steps taken by Mr Cavallo to contain Argentina's financial instability.

But Mr Cavallo said the Mercosur trade block was stable and there were no conflicts but did not elaborate on their common stand toward the US.

Debt default

Mr Cavallo described speculation that Argentina would default on its debt repayment as irresponsible.

"We will never consider that as an alternative," he said adding, "Just talking of default is a way of damaging the credit (of Argentina)".

Argentina been in recession for 33 months and has a $128bn debt to service with interest payments of $11bn due this year.

It has a massive loan from the International Monetary Fund, conditional on Mr Cavallo reaching budget targets.

Some analysts have suggested the country will have to restructure its debt to reduce the payments because of the low currency reserves held by the central bank.

Euro peg

The economy minister also defended his proposal to broaden the peso's peg to the dollar to include the euro.

He said the dollar and euro would eventually hit parity, which is when the peso would be tied to an average value of the two creating greater "stability" for the currency.

"We will not consider any other plan," he said without making any predictions when it would occur.

The peso's peg to the dollar was introduced by Mr Cavallo in 1991 and ended years of hyperinflation but has caused Argentina economic difficulties because of the US currency's strength.

"The economy that might not be able to live with the strong dollar is the US," said Mr Cavallo, "The risk of recession is there and that is why the Fed has cut rates. The dollar will become weak."

Mr Cavallo was speaking to journalists in London ahead of a Group of Thirty meeting, which brings together policy makers and financial institutions from around the world.