Mercosur - Changing Course?

Mercosur began steps to widen the process of regional integration through a series of framework agreements with various countries and regional blocs. But in 1997, the international financial environment changed. The Asian financial crisis of 1997 had a devastating effect on several developing economies. In 1998, Russia announced a moratorium on the repayment of its foreign debt. This brought several other countries under a cloud as well. The moratorium severely undermined the credibility of developing economies to honor debt repayment obligations and led to capital flight from countries as far away as Brazil and Argentina leading to a serious financial crisis in both the countries...

When the Brazilian Real was delinked from the dollar and devalued, the Argentine Peso was still pegged to the dollar and overvalued. This was a period of great tension between the two neighbors as Argentine exports to Brazil turned expensive, while Brazilian exports to Argentina became cheap. In the first eight months of 1999, Argentine exports to Brazil fell 28% compared to the corresponding period in 1998. As Brazilian exports to Argentina surged by 37.6% in textiles and 66.4% in footwear in the same period, Argentina imposed various non-tariff barriers. Argentina, already affected by high levels of unemployment, slipped into a recession with negative growth in this crisis...