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Upbeat Talk From Argentina's Moneyman (Int'l Edition)


International -- Intl' Business: ARGENTINA

UPBEAT TALK FROM ARGENTINA'S MONEYMAN (int'l edition)

Economy Minister Domingo Cavallo, chief architect of Argentina's revival in the early 1990s, has reined in its economy this year with austerity measures to bolster the Argentine peso against the "tequila effect"--the shocks from Mexico's currency debacle. Cavallo's actions are embroiling him in political battles. Recently, he refused to extend a $70 million bailout loan to near-bankrupt Crdoba unless the province agreed to privatize state-run companies. Cavallo won the showdown: The governor resigned this month to make way for a successor who is expected to sell off the companies.

In his office in the Economy Ministry in Buenos Aires, Cavallo talked with Ian Katz, BUSINESS WEEK's So Paulo-based correspondent, about Argentina's economy, hemispheric integration, and other issues.

Q: You are forecasting 3% economic growth this year, despite the current slump. Is flight capital returning?

A: Of $8 billion in bank deposits that left, $4 billion have returned. I calculate that in two more months, it will all be back.

Q: What about direct investments?

A: We haven't seen a single case of a planned [foreign] direct investment that wasn't carried out because of the tequila effect. If it had any impact, it was on Argentine businesses affected by internal credit restrictions.

Q: Is the bank shakeout continuing?

A: Strong banks are absorbing weak banks. We hope that Brazilian or Chilean banks will become interested in the regional Argentine banks. And in the case of [state-owned] provincial banks, we are promoting and financing their privatization. The restructuring will give us a more efficient financial system.

Q: Argentina protested Brazil's recent auto import curbs. What is the outcome?

A: Mercosur rules will be maintained during 1995, and we are working on rules for 1996 and thereafter. We expect to sell 70,000 autos [to Brazil] this year--30,000 in the first half and 40,000 more in the second half.

Q: Are auto investment plans likely to be affected by the dispute?

A: We estimate that the industry will make one-third of its investments in Argentina and two-thirds in Brazil, proportionate to the size of the two markets.

Q: Do the two governments influence these decisions? Could an auto company put all its investments in one country?

A: There's nothing to prevent it. But the companies see that both nations are looking for more or less balanced trade, so they draw up investment programs to produce in both countries. When the economic cycles aren't synchronized, as is happening now, being in both places enables them to diversify the risk.

Q: Will Mercosur join the North American Free Trade Agreement?

A: First, we have to consolidate Mercosur. Its members shouldn't enter NAFTA one by one. It would be better to prepare ourselves--above all, Argentina and Brazil--to enter together.

Q: What was your criticism of the U.S. at the recent hemispheric meeting of ministers in Denver?

A: If the U.S. uses the invitation to enter NAFTA as a kind of reward for supposed good conduct by our countries, obviously, it's not going to get from a country like Brazil or Argentina the attitude of a disciplined student who wants to follow all the steps in order to graduate. It would be better to recognize the subregional integration efforts and have a disposition to joint negotiations--NAFTA on one side and Mercosur on the other.


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