Please help me with the 3 discussion questions. I have answered them but not sur
ID: 1133208 • Letter: P
Question
Please help me with the 3 discussion questions. I have answered them but not sure if they are correct
CASE 2.2 TROUBLE IN MERCOSUR ince its inception, Mercosur had become Latin US$374 billion). From 1991 to 1998, trade betwee America's most successful integration agree- Brazil and Argentina increased 500 percent to S1 ment. Among its members were Latin America's billion. However, in 1999, Mercosur trade volum largest economy, Brazil (GDP US$1,035 billion), fell 20 percent. Argentina and Brazil were bot and its third-largest economy, Argentina (GDP experiencing recessions and disagreed on whicExplanation / Answer
Q1) dollarization imply giving up own currency system & to adopt dollar as the legal tender. Though it could have solved Argentina problem of debt payment but it would have to give up its sovereignty & can't take independent decisions regarding foreign exchange policy,
So rather Argentina should adopt a free floating exchange rate, ( with lower & upper bands on foreign exchange) & should adopt the measure to strengthen its economy via making exports competitive.
2) as us exporter of heavy machinery, the preferred foreign exchange system from their perspective is free floating of ex rate, bcoz it would have benefited the us exporters as peso would be highly depreciated as against dollar & so they will be paying more peso for the same amount of export before the currency depreciation.
For European & Brazil exporters ,they will wish for dollarization, as then they will be paid in dollar bills, which will increase their dollar reserves & of course dollar is the most precious & powerful currency
3) the problem is lack of mutual benefit, understanding & co-operation feeling .
The very basic idea of regional integration agreement is totally undermined by involving in extra regional economic interests with USA as compared to its regional neighbours, thus Brazil’s behaviour towards MERCOSUR is volatile. It deviated from cooperation during the early 1990s to defection from regional integration later on . After this defection, MERCOSUR’s regional integration stagnated, and Brazil started to cooperate outside of the regional organization by Strategic Partnership. Though Brazil initially pushed the establishment of MERCOSUR’s customs union, but then devalued its currency unilaterally and refused any kind of monetary coordination in the face of the Argentinean crisis in 1999. Brazil’s behaviour during that crisis provoked long-term problems for regional integration in MERCOSUR which could not regain the dynamic it had during the 1990s.