¿Domino Effect?: No Questions Only Loans Ecuador Brazil

What appeared in the first instance as an isolated event in what was Ecuador's decision not to pay the loan made to the BNDES, considering irregular and thus an international tribunal to request cancellation of a debt of U.S. $ 286.8 million, looks like it may be the tip of an iceberg.

The provision was motivated by the BNDES to finance the construction of hydroelectric San Francisco, a work built by the Brazilian company Odebrecht, which opened in mid-2007 but ceased operations in June of this year due to serious structural failure . As a result, Ecuador blamed the Brazilian firm, which was expelled from the country by its president, Rafael Correa.

But the problem with the allocated funds in Brazil, do not end there. Is that after questioning the debt Ecuador, joined Correa claims his friend Hugo Chavez announced on Friday the creation of an audit for external debt.

And in Ecuador and Venezuela, Paraguay and Bolivia also joined, who started about internal audits. The audit also created another first, focusing on debt incurred in conjunction with Brazil to build Itaipu hydroelectric plant, which is not entirely clear and raises as many questions as in the case of Ecuador.

In the case of Ecuador's debt is canceled by the international tribunal, it must be assumed by the Brazilian Treasury, which was the guarantor of the transaction. Something similar may happen with the rest of the countries.

The generalization of the conflict, and produce a diplomatic dispute between Brazil and this set of countries, would result in financial loss to Brazil for U.S. $ 5,000 million. But it also means an economic harm to all involved countries to reduce trade between them and the Brazilian economy.

In this sense, in relation to the conflict with Ecuador's Foreign Minister Celso Amorim said Brazil should not do that Ecuador effectively implement their commitments: "It's going to end trade between Brazil and Ecuador?. This threat has negative implications not only for Ecuador but also to Brazil and potentially for other countries that can enter into a similar conflict with the country that governs Lula Da Silva.

As a matter of business relations between Ecuador and Brazil in 2007, trade between the two totaled U.S. $ 767.5 million, of which U.S. $ 36.6 million were Ecuadorian exports and $ 730.9 million accounted for the remaining imports from Brazil.

Trade relations between Brazil and Venezuela, accumulated to September $ 5,500 million and the estimate placed at U.S. $ 7,000 to the total volume of this year. The possible deterioration of trade relations between both countries in Brazil could generate a significant impact in the Free Zone of Manaus in northern Brazil from where they are produced and exported to Venezuela electronic materials, appliances, tires and recently also food and livestock bovine. On the side of Venezuela, exports to Brazil are mainly petroleum while, the Guri Dam, Venezuela supplies power to the border towns of northern Brazil.

With regard to the commercial relationship between Brazil and Paraguay, the trade balance is clearly favorable to the more than U.S. $ 1,100 million annually. On the other hand, the importance of support from the Brazilian economy to Paraguay is not minor. Paraguay became the fifth largest exporter of soybeans in the world with the support of the Brazilian technology.

For Bolivia, and represents an important trading partner, Brazil is currently the largest foreign investor in the country, so that a deterioration in relations between the two would not less injury to the Bolivian economy.

But not only this conflict would damage trade relations between these countries, but, also alter the foreign direct investment, although to a lesser extent.

The conflict between Ecuador and Brazil has led to a series of consequences with a potential negative impact of significance for all countries involved (including Brazil), but the damage in the smaller economies may lead them to the point of compromising macroeconomic health. Will these countries willing to negotiate an alternative solution that prevents all lose in the conflict?