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CIAO DATE: 9/5/2006
The Bargain of the Unstable: Trade Negotiations and Financial Crises in Mercosur 1995-2001
Pablo Heidrich
February 2005
Center for International Studies University of Southern California
Abstract
Argentina and Brazil suffered grave financial crises during the 1990s1. During that time, they were involved in trade negotiations with each other inside Mercosur. As the financial crises struck one or the other country, their negotiating positions varied from accommodating to aggressive, leading to peaks of confrontation from which Mercosur has not quite recovered yet. Furthermore, those crises provoked a large number of trade disputes as protectionism from both countries grew when the crises increasingly hurt their economies.
These episodes illustrate some so far understudied relationships between what happens in financial spheres with what goes on in trade issues. The studies of political economy have traditionally specialized into studying one or the other aspect but rarely the two, together. Here, I make the argument that financial crises were a powerful factor in changing the bargaining positions of Argentina and Brazil during the 1990s. I draw insights from the specific characteristics of financial crises, such as the sudden scarcity of capital and the possibility of contagion, to explain these changes in negotiating positions in trade issues.
