Alegrett rejects possibility that Brazilian devaluation will prove disastrous to trade with Andean countries

Lima, 13 Jan. 99. Andean Community Secretary General Sebastián Alegrett stated today that the Brazilian currency devaluation is a "clear demonstration of the huge sacrifice" the government of that country is willing to make and rejected the possibility that it could have "disastrous or devastating effects" on trade with the Andean countries.

Interviewed by Peruvian CPN radio, Alegrett expressed his confidence that the easing of the exchange regime "is convincing proof of what President Fernando Henrique Cardoso hopes to accomplish" and wíll therefore elicit a positive response that will contain the crisis" and that will be taken into account in the evaluations of emerging markets made by financial centers.

"Should a negative situation be created, all of us will be losers, including the financial centers themselves" warned Alegrett, after expressing his trust that a climate of "calm and sensibleness' will take hold.

The Brazilian government today announced a modification of the exchange system that will allow for a nominal devaluation in the neighborhood of 12 percent in 1999, geared toward bringing interest rates down more heavily as progress is made toward reaching fiscal adjustment.

Asked about the impact of the measure on trade flows with Latin America, the Andean Community Secretary General deemed that it "would help to remedy a likely situation of overvaluation" that could have an impact on Brazil's main trading partners, but rejected out of hand the possibility of its "destabilizing trade with the region as a whole."

He considered that in the specific case of the Andean countries, which are currently negotiating a free trade zone with Mercosur, there would be no "immediate developments." On the contrary, he explained that "it would force all of us to speed up the negotiation," for integration "is showing itself to have an important capacity to absorb external shocks."

Alegrett made these declarations as a three-day meeting of representatives of the Andean Community of Nations (CAN) and Mercosur was opened today at the Andean Community headquarters. The meeting is being held to move ahead with the negotiation of the Tariff Preferences Agreement, which shouId be ready on March 31 and open the way to the creation of a free trade zone between the two trade blocs starting in the year 2000.

He explained that the current negotiation should ensure that already-existing trade is maintained and reiterated his conviction that Brazil's exchange measures "will not have any negative effects in the medium term or disrupt the negotiation" that is underway.

The CAN Secretary General considered that the issues that are still outstanding "can be resolved over the course of this year if the intention to negotiate and the proper mood exist. We Andean people are extremely willing to negotiate and are awaiting Mercosur's answer," he added.

He admitted to the existence of problems over Mercosur's reluctance to discuss regulatory aspects and other key issues, but expressed his confidence that the necessary negotiating spirit for the two parties to reach an understanding will prevail. "Unless there is an explicit willingness to negotiate, we won't get anywhere," he explained.

Regarding a possible change in the Andean Common External Tariff, he stated that at the moment it would be difficult to make a decision of this kind, but that "the idea is to move ahead with the consolidation of the Customs Union" under a medium-term approach.