Summary of a meeting with Dr. Albert Fishlow, Director, Center of Brazilian Studies, Columbia University.

"This financial crisis in Argentina is the worst crisis that has happened since the depression," said Dr. Albert Fishlow, one of the most respected American economists interested in Brazil and Argentina. "Considering the per capita income, Argentina dropped from the 6th position, where it was at the beginning of the last century, to the 56th position at the beginning of this new century. No other country in the world has moved in this fashion, so quickly," assured Fishlow.

The causes for the Argentine crisis are well known and combine the mistakes of several administrations that led Argentina to accumulate a fiscal debt of close to 5% of GDP. Now Argentina faces the challenge of remaining current on a US$140 billion external debt. Indeed, the artificial parity between the Argentine peso and the US dollar deepened the crisis and led Argentine into an irreversible situation. The recent measures have proven incapable of tackling the crisis. Argentina lost US$ 15 billion in international reserves, the " dual-system" of currency will hold up much longer, and the "corralito" killed the remaining prospect of any government support. Consequently, the future is gloomy, because in order to address the crisis, the government needs to reduce the deficit to zero and simultaneously to restructure the bank system, a difficult task considering the fact that eight of ten Argentine banks are foreign owned.

It is clear that the effects of the Argentine crisis have been devastating both internationally and to a greater extent domestically, but as Dr. Fishlow pointed out, Brazil has yet to feel the negative ripples of the crisis. There are three possible reasons for this: First, despite the previous strength of the Argentine economy, trade relations between the two nations have always been unequal. Despite the ties that Brazil shares with Argentina through Mercosur, the Brazilian economy is not considered dependent on its Argentine counterpart. This is something that the market was clearly able to detect. In contrast to the the 1998 crash in Brazil, the recent crisis was hardly a surprise. Coupled with the fact that numerous protective measures had been taken after the Brazilian collapse, this unequal trade relationship, and the expected and relatively gradual Argentine downturn have had little direct effect on Brazil. Regardless, there are those who insist on linking these two South American giants. They point to the similarities between the size and poor organization of public debt in Brazil and Argentina, warning that Brazil is heading in the same direction as it's neighbor. This is not a belief that Dr. Fishlow holds nor feels is particularly relevant.

While the crisis has had little direct effect on Brazil, this is not to say Brazil has remained untouched in all ways. Dr. Fishlow predicts an eventual crumbling of Mercosur, a development that would inevitably affect Brazil. The collapse will also shake up such possible arrangements as SAFTA and will undoubtedly have an effect on plans for a Free Trade Area of the Americas.

by Alex Parlini