From iatp@igc.apc.orgMon Jan 2 20:10:28 1995 Date: Mon, 02 Jan 1995 05:59:16 -0800 (PST) From: IATP To: Recipients of conference Subject: NAFTA & Inter-Am Monitor 1/2/95 Produced by the Institute for Agriculture and Trade Policy - - - - - - - - - - - - - - - - - - NAFTA and Inter-American Trade Monitor, vol. 2, #1 January 2, 1995 - - - - - - - - - - - - - - - - - - HEADLINES POPO AND THE PESO COFFEE PRODUCERS TRY TO BOOST PRICES BANANA UPDATE RESOURCES/EVENTS - - - - - - - - - - - - - - - - - - POPO AND THE PESO As smoking Popocatepetl's new rumblings sent tens of thousands of people fleeing from their homes, the international reverberations of Mexican President Zedillo's devaluation of the peso sent investors scrambling for safety. The crisis began on December 20 when, after months of denying rumors of devaluation, the government lowered the bottom of the band within which the peso was allowed to trade against the dollar. As the peso immediately plunged and investors panicked, the government abolished the band and let the peso float. By the time that the government finally announced an emergency stabilization plan, more than a week later, the peso had lost more than a third of its value. Despite government insistence on a 60-day price freeze, prices of such staple items as rice, beans, chicken, and Mexican-made cigarettes shot up by as much as 40 percent by December 24. In Latin America, investor confidence appeared shaky, with the Argentine stock market dropping by eight percent and the Brazilian market dropping by six percent on December 20-21. Foreign investment makes up an increasingly large share of all investment in Mexico and the rest of Latin America. Foreign investors had $75 billion invested in Mexican securities before the crisis. The value of such investments dropped along with the peso. Mexican depository receipts traded on the New York Stock Exchange also dropped sharply. The government initially blamed the faltering peso on renewed unrest in Chiapas and the Zapatista guerrilla announcement of an end to the 11-month ceasefire. A more plausible explanation lay in the country's booming trade deficit, estimated at $30 billion at the end of 1994. Devaluation will cut the trade deficit, possibly by half, in the coming year. With the peso worth less, Mexican exports will be more attractive to foreign consumers and imported goods more expensive to Mexicans. While manufacturers who export to Mexico, such as United States auto makers, will be hurt by the devaluation, businesses that manufacture goods in Mexico for export may benefit. They will pay less in dollar terms for both inputs purchased in Mexico and for Mexican labor. Greater sacrifices by labor and government austerity were two key elements of President Zedillo's emergency plan. Unions will be asked to accept wage increases substantially lower than the 15-20 percent inflation rate predicted in 1995. According to government figures, inflation was 6.9 percent in 1994. Government spending, now at about 10 percent of the gross domestic product, will be cut by 20-30 percent. Mexico will also use an international aid package that includes a $6 billion line of credit from the United States, $1 billion from Canada, and up to $8 billion from other countries and foreign banks. Privatization will be accelerated. Finance Minister Jaime Serra Puche, a key figure in NAFTA negotiations under former President Salinas, was dismissed on December 29. Investors and stockbrokers denounced Serra Puche for his failure to warn them about the devaluation, and for his failure to produce an immediate public plan to rescue the peso. His replacement will be Guillermo Ortiz Martinez, a Stanford- educated economist who has been under-secretary of finance for six years. Ortiz is a new face who cannot be blamed for the precipitous devaluation, and who appears to have good connections with the international business and finance community. Source: Anthony DePalma, "Casualty of the Peso: Investor Confidence;" NEW YORK TIMES, 12/27/94; Craig Torres and Paul B. Carroll, "Mexico Reverses Currency Policy; Peso Falls 12.7%," WALL STREET JOURNAL, 12/21/94; Anthony DePalma, "Mexico's Leader, Breaking Silence, Outlines A Rescue;" Tim Golden, "A Quick Fall for Mexico's Rising Star," NEW YORK TIMES, 12/30/94; Tim Golden, "With Peso's Devaluation, Political Problems Loom," NEW YORK TIMES, 12/25/94; Craig Torres, "Mexico's Devaluation Stuns Latin America -- And U.S. Investors," WALL STREET JOURNAL, 12/22/94; Tim Golden, "Boom Shows Its Dark Side," Anthony DePalma, "With Peso Freed, Mexican Currency Drops 20% More," James Bennet, "Mexican Shock for U.S. Concerns," Kenneth N. Gilpin, "Investors Weigh a Market's Safety," NEW YORK TIMES, 12/23/94; Stephen Fidler and Ted Bardacke, "Nerves Over Deficit and Dissidence," FINANCIAL TIMES, 12/21/94; Eduardo Molina y Vedia, "Peso Devalued 15 Percent Against the Dollar," INTERPRESS SERVICE, 12/20/94; Anthony DePalma, "Dogged Doctor for Mexico's Morass," NEW YORK TIMES, 12/31/94; Paul Lewis, "Awaiting Mexico's Plan to Revive Peso," NEW YORK TIMES, 1/1/95. - - - - - - - - - - - - - - - - - - COFFEE PRODUCERS TRY TO BOOST PRICES Latin American coffee producers meeting in Guatemala on December 21 agreed to reintroduce a coffee retention program, beginning in January. They will hold back 20 percent of exports until prices reach $1.90 per pound, and will re-evaluate the plan when that goal is achieved, or at their next meeting on February 28. After the implementation of a coffee retention plan from October, 1993-January, 1994, and after two severe frosts and a drought damaged Brazil's 1994-95 and 1995-96 coffee crops, coffee prices nearly tripled. More recently, prices have seesawed dramatically. During December, London coffee prices ranged from $2,870 per ton for January coffee to $3,523 per ton. The Brazilian government reported a total of 15.17 million sacks of 60 kilograms each on hand in early December, despite poor harvests last year. Each sack is worth approximately $130 dollars, for a total of nearly two billion dollars. The government releases its coffee stocks from time to time to keep domestic coffee prices stable. Central American producers, who sold coffee early and missed much of the benefit of 1994's price increases, pushed for the retention scheme. Coffee futures prices in London and New York rose in reaction to the announcement. Coffee futures prices affect government coffee sales and large traders. Small growers and farm workers see less profit from increased prices. Guatemalan workers typically pick 100 pounds of coffee daily to earn two dollars. The gourmet coffee that they pick sells for nine dollars or more per pound at retail. Source: Andi Spicer, "Latin Americans Restart Coffee Retention Scheme," INTERPRESS SERVICE, 12/22/94; Andi Spicer, "Price Hits Floor Before Reversing Slide," INTERPRESS SERVICE, 12/16/94; "Over 15 Million Sacks of Coffee in Reserve," INTERPRESS SERVICE, 12/8/94; "Central American Growers to Discuss Coffee Alliance," JOURNAL OF COMMERCE, 12/14/94; Carol Richardson, "Starbucks Coffee and Guatemala Workers," 50 CALLS A WEEK NETWORK, 12/5/94. - - - - - - - - - - - - - - - - - - BANANA UPDATE Caribbean banana producers and the United States government discussed their differences at the Summit of the Americas, after the former won a major victory at a GATT meeting, with two- thirds of the member countries voting to continue preferential treatment for Caricom banana producers. The U.S. has now agreed to back the Lome Convention preferences until 2002. The new agreement seems to avert the threat of U.S. trade sanctions under Section 301. The sanctions were requested by two U.S. companies, Chiquita Brands International and the Hawaii Banana Producer Association. The Section 301 investigation technically continues. Latin American producers also charge that the Lome Convention preferences unfairly discriminate against them in favor of smaller Caribbean nations. Source: Bert Wilkinson, "Caribbean, U.S. Agree to Skin Banana Differences," INTERPRESS SERVICE, 12/10/94; Debra Percival, "Germany to Renew Attack on EU Import Rules," INTERPRESS SERVICE, 12/9/94; Scott West, "Temporary Truce in Banana War," INTERPRESS SERVICE, 12/14/94. - - - - - - - - - - - - - - - - - - RESOURCES/EVENTS "Structural Adjustment and Inequality in Latin America: How IMF and World Bank Policies Have Failed the Poor." Oxfam UK and Ireland Policy Department, September 1994. Oxfam, 274 Banbury Road, Oxford, England, OX2 7DZ. 24 pages. Challenging a recent World Bank report praising market-oriented reforms, Oxfam charges that "the free-market revolution of privatisation, fiscal discipline, and deregulation, which has swept Latin America, has done little to improve most people's lives. Rather, IMF and World Bank policies are encouraging a pattern of economic growth based on social exclusion. Growth has bypassed the poor and most people are even poorer than they were in 1980." "NAFTA: Reflections on the First Year and Visions for the Future." Symposium at the University of Arizona, February 22-24, 1995. Co-sponsored by Arizona Journal of International and Comparative Law, National Law Center for Inter-American Free Trade, International Law Society of the University of Arizona, and Arizona Department of Commerce. Topics include environmental issues, banking and credit issues, trade and customs issues, and labor issues. Call 602/621-5593 or write Arizona Journal of International and Comparative Law, University of Arizona College of Law, Tucson, AZ 85721. $225 per person before 1/15/95, $275 after 1/15/95. "The Impact of Trade Policy and the Flow of Global Finances on Sustainable Development." Conference in Ecuador on April 25-27, 1995. Sponsored by Ecuadorian Foundation for Environmentally Sustainable Development in the Energy Sector (Fundacin Ecuatoriana para el Desarrollo Medio-Ambiental Sostenible de los Sectores Productivos (o de Servicio) Energticas Nacionales). Themes include Trade and Sustainable Development, External Indebtedness and Finance, Macroeconomic Policy for the Environment and Development (including privatization and environmental accounting), and Environmental Sustainability. Papers invited. Fax Eduardo Aguiar, President at 011-5932- 330534. "A Giant Spraying Sound," by Esther Schrader. Article in MOTHER JONES, January/February 1995. 5 pages. Examines agricultural pesticide use in Mexico, focusing on impact on worker safety and health. "Rural Latin America: Wrestling With the Global Economy," NACLA REPORT ON THE AMERICAS, November/December 1994. North American Congress on Latin America, 475 Riverside Drive, Suite 454, New York, NY 10115. Telephone 212/870-3146. 48 pages. $4.75 for single issue, $27 one year. Articles in this special issue include: "The Legacy of Latin American Land Reform" by Solon L. Barraclough; "New Harvests, Old Problems: Feeding the Global Supermarket" by Lori Ann Thrupp; "Will Central America's Farmers Survive the Export Boom?" by Edelberto Torres Escobar; "Interviews With Three Campesino Activists" by Marc Edelman; "Rural Upheaval and the Survival of the Maya" by Edgar Gutirrez; and "The Greening of Cuba" by Peter Rosset. "Chiapas and the Crisis of Mexican Agriculture" by Roger Burbach and Peter Rosset. December 1994. Institute for Food and Development Policy. To order, write Subterranean Company (distributor), Box 160, 265 S. 5th Street, Monroe, OR 97456. Fax 503/847-6018. $4 plus s&h. Original title was "Land, Liberty & Food in Chiapas." Argues that the profound agricultural crisis of Chiapas is "symptomatic of a larger malaise affecting the entire country." - - - - - - - - - - - - - - - - - - The NAFTA and Inter-American Trade Monitor is available in both English and Spanish on Association for Progressive Communications (APC) computer networks on the conference eai.news. It can also be faxed or sent via mail on request. We welcome your comments and contributions. - - - - - - - - - - - - - - - - - - For more information about the Institute for Agriculture and Trade Policy, send email to iatp-info@igc.apc.org. - - - - - - - - - - - - - - - - - - Produced by: Mary C. Turck, Institute for Agriculture & Trade Policy, 1313 Fifth St. SE, Suite #303, Minneapolis, MN 55414- 1546 USA Tel: (612) 379-5980, Fax: (612) 379-5982, email: mturck@igc.apc.org