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Tuesday, 9 October, 2001, 22:14 GMT 23:14 UK
South American trade bloc rows
protesters
Argentina's recession has hit the poor hardest
South American government ministers are meeting in Sao Paolo, in an attempt to iron out problems in regional trade pact Mercosur.

Brazilian president Fernando Henrique Cardoso and Argentina's Fernando de la Rua restated their support for the pact on Monday.

Their comments come as the two countries struggle to come to grips with their economic difficulties, which some local policy makers blame on the freer trade allowed by Mercosur.

The talks in Brazil will be closely watched by US and European trade officials, who want to forge closer trade links with the region.

The alliance has been fraught since Brazil devalued its currency, the real, in January 1999.

This devaluation gave Brazilian exporters a strong advantage in the Argentine market, sparking anger in the recession-weary country.

The crisis in Argentina - which culminated with an multi-billion IMF package earlier this year - brought the row with Brazil to a head.

Suspension?

"The competitiveness that Brazil won with its devaluation came at the expense of its main partner, Argentina...it was one of the main factors deepening the recession in Argentina," Carlos Bueno, a member of the country's industrial union told the BBC's World Business Report.

It has called for Mercosur to be suspended for six months while member countries reach agreement on macro-economic policy.

In practice such a suspension is exceptionally unlikely, given the strong links between the trade bloc's two main members, with some large companies even having production facilities in both countries.

While Brazil and Argentina are the two key members of the trade bloc, it also includes Paraguay, Uruguay, Chile and Bolivia as its members. The bloc has a population of 210 million.

"Many policy makers on both sides of the border blame the other party for the problems," Pablo Berenstein, a professor at Torcuato Di Tella University, told the BBC's World Business Report.

"The cost of terminating Mercosur is so huge that my impression is that this is eventually going to get better. This is like marriage," he added.

 WATCH/LISTEN
 ON THIS STORY
The BBC's Lourdes Heredia
"Mercosur has been plagued by trade rows"
See also:

22 Aug 01 | Americas
Argentina pins hopes on IMF loan
16 Sep 01 | Business
IMF loan to secure Brazil
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