O'Neill visits South America amid spreading economic malaise

BUENOS AIRES, Argentina -- U.S. Treasury Secretary Paul O'Neill urged Argentina on Wednesday to adopt a sound recovery strategy, but his encouraging words on a South American swing did little to ease fears the region's economic malaise could spread.

After Wall Street's stock sell-off and corporate scandals at home, O'Neill found more to worry about on his four-day trip to South America. Brazil's currency is slumping, the Argentina debt crisis lingers, and last week, Uruguay's banking system ran painfully short of cash.

Analysts say the economic struggles faced by the three countries O'Neill visited have become one of the most troubling issues abroad to the Bush administration, alongside other obstacles to global economic expansion including the stubborn recession in Japan.

One more problem

"This is one more problem on the list," said John Williamson at the International Institute for Economics, a Washington think tank. "It doesn't match the corporate scandals or Sept. 11, but yes, it's up there."

Shut out of most credit markets since it defaulted on its $141 billion debt in December, Argentina has been struggling for months to get bailout aid from the International Monetary Fund.

Argentina's economy minister, Roberto Lavagna, told O'Neill on Wednesday that the government had already come up with a credible plan to surmount the four-year recession.

O'Neill made no promise of aid, instead offering advice to Argentina to settle any disagreements with the IMF.

"Our support is for moving as quickly as possible," O'Neill said at a news conference. "My hopes for the people of Argentina are high.

"I know with the right policies in place the people of Argentina will succeed."

Uruguay, historically one the most stable of South American nations, got a major boost at the start of O'Neill's tour Sunday. Washington awarded it $1.5 billion in emergency aid to reopen its banks after a four-day shutdown that was fueled in part by the crisis in Argentina next door.

The aid was the first direct assistance of its kind by the Bush administration. But O'Neill signaled Wednesday he didn't expect South America's two biggest economies, Brazil and Argentina, to get anything similar from the United States.

Problems could spread

While critics argue bailouts are costly to foreign taxpayers, many economists warn the malaise of South America's slumping economies could spread.

"Argentina is the dead man walking of the three ... and the question is how to resurrect it. The medicine for Uruguay was cheap. But Brazil is the real tough one for Washington," said Carl Ross, head of emergency market research at Bear Stearns in New York. "That country needs a big confidence boost ... and it will take a lot of money to do that."

Brazil, the biggest economy in Latin America, has seen its currency, the real, drop 23 percent against the dollar in recent months.