BRAZIL'S BAILOUT MAY REBOOT ARGENTINA The International Monetary Fund's Nov. 13 announcement of a $42 billion bailout for Brazil will not only help Latin America's biggest economy. It will also bring some relief to Argentina, which counts Brazil as its biggest export market. After growing 7% in the first half compared to year-ago levels, Argentina's real gross domestic product will probably show no growth in the second half of 1998 as the economy struggles with the financial fallout of the Asian and Russian crises. Real GDP grew nearly 8.6% in 1997. The industrial sector is already shrinking, brought down by high interest rates and Brazil's troubles. According to a private Argentine think tank, industrial production fell 0.5% in the third quarter from a year ago, the first decline in 2 1/2 years (chart), and it likely dropped further in October. Vehicle output alone was down 26% vs. a year ago, although the plunge is exaggerated because October, 1997, saw a peak in car production. Still, car demand domestically and from Brazil is slumping. The data on other spending also show some weakness, which is cutting into federal tax receipts. Moreover, foreign investment plunged in the third quarter from a year earlier. Argentina's economy will get some lift from other sources besides the IMF funds for Brazil. The World Bank has approved $3 billion in loans to strengthen Argentina's financial safety net and to stave off currency contagion. So far, foreign-exchange reserves have been steady and the peso has held firm. Also, interest rates have come down, especially those for peso-denominated loans, after having risen sharply following Russia's debt default. However, with domestic demand slacking off, credit growth is still slowing, despite the rate cuts. The government says that real GDP will recover in 1999, growing 4.8% for the year. But private economists are skeptical, forecasting growth as low as 1%. That's because the damage done from the summer's high interest rates, consumer caution, and investor flight will take time to reverse. BY JAMES C. COOPER & KATHLEEN MADIGAN RELATED ITEMS CHART: Manufacturing Is Already Shrinking Return to top of story

Updated Nov. 19, 1998 by bwwebmaster
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