South Americans Grapple With Gyrating Oil Prices

AS the Gulf war continued, customers at Mappin, a Brazilian department store, were stocking up last week on bottled cooking gas, looking for electric stoves, and thinking of new microwave recipes. ``If I don't have another option, I'll use the microwave,'' said Mar'ia Lucia Buzone, a housewife. ``I am very afraid and I don't have any [stored] bottled gas.''

Immediately after the first attack on Iraq, Brazilian President Fernando Collor de Mello announced measures to cut oil consumption, including shorter hours for gasoline stations, reduced supplies to distributors, and rationed cooking gas.

Oil prices have gyrated wildly since the Aug. 2 invasion of Kuwait, and it's not clear when they will stabilize or at what price. But most South American countries, after struggling with the effects of previous oil crises, are taking protective measures.

For oil exporters such as Venezuela, the challenge is to use its windfall wisely. Oil importers like Chile and Brazil worry that higher fuel prices could translate to higher prices for trucked goods, and items that use petroleum, such as plastic. And in Argentina, which produces about as much petroleum as it consumes, the Gulf war is more a political than economic question.

But in all these South American countries, the conflict is bad news, coming only months after President Bush announced his ``Enterprise for the Americas'' plan to foster regional economic growth, trade, and investment. For many, the Gulf war, added to a United States recession, means a shrinking export market.

``South America takes a back seat in the Gulf crisis,'' says Rosendo Fraga, director of a Buenos Aires think tank.

Analysts say enthusiasm for the Bush plan and better relations with the US are primary reasons Argentina sent two warships to the Gulf, the only South American country to do so.

Still, many Argentine politicians protested President Carlos Sa'ul Menem's decision to send ships, because he did not consult the Argentine Congress as the country's Constitution requires.

THE situation is different in Chile, which imports 85 percent of its oil, but is one of the few Latin American economies that is stable and growing. There, the government on Jan. 17 announced restrictions on oil supplies, prices, and consumption.

``There is a good possibility of isolating the country from the direct impact of oil prices,'' says Joaqu'in Vial of the Corporation for Economic Research on Latin America, in Santiago, Chile. Recent measures include supply contracts with Venezuela, Colombia, and Argentina; restrictions on passenger car use and public transportation; and voluntary fuel conservation. Chile also set up a $200 million oil-price stabilization fund with profits from copper exports, as a cushion against price increases on imported oil.

Venezuela also has a stabilization fund, but its function is to protect the economy from windfall oil profits. ``It is very crucial for us to avoid any dramatic change in oil prices,'' says Pedro Palma, president of a Caracas-based consulting firm, ``We have to avoid injecting the revenues into the economy so we don't have the kinds of problems we suffered in previous oil shocks.''

Oil income from prices higher that $19 a barrel or from sales volumes in excess of 1.9 million barrels a day goes into the reserve fund. After the war, ``if oil prices drop by a substantial amount, the reserve can be spent to avoid big changes in the economy,'' such as government budget cuts, Mr. Palma says. The fund reached $1.4 billion by the end of December.

The Gulf war caught Brazil, South America's largest nation, in the midst of a recession. Already, the government's economic policy was questioned, because it has not brought down inflation enough.

Some analysts say that the Brazilian president may unjustly blame the war for failures on the domestic economic front. They speculate that the war could spur major policy changes, including a temporary reversal of Mr. Collor's liberal trade policy.

Inflation is still high, at 19 percent in December. With oil imports making up 60 percent of consumption, a bigger oil bill would add to inflation pressure. Gazeta Mercantil, a business daily, reports the Gulf crisis has so far cost Brazil at least $5 billion in oil bills and lost export income.

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