Argentina and Brazil to discuss trade agreement to skip dollar

Argentine importers could pay in pesos while Brazilian exporters would access a financing mechanism

An economic mission to Brazil headed by Minister Sergio Massa will meet with Brazilian officials and businessmen today to try to boost bilateral trade, within the framework of the official visit of President Alberto Fernández. Argentine officials will begin by outlining a negotiation to boost bilateral trade that will exclude the dollar, a difficult issue for Argentina, and one which Brazil is willing to agree to.

The Brazilian Deputy Minister of Economy, Gabriel Galípolo, said that Brazil will propose the creation of a special line of financing for Brazilian companies that sell to Argentina in local currencies and thus maintain the flow of bilateral trade between the two main Mercosur partners.

“In the last five years, due to Brazil’s lack of mechanisms to finance its exports and Argentine imports, we have lost approximately US$6 billion of space in the trade balance with Argentina to China, which has been providing financing mechanisms in alternative means of payment, such as swaps, or giving credit to the exporter”, the official told GloboNews news network.

Beyond the financing lines, the agreement that Argentina and Brazil intend to sign involves excluding the dollar as payment currency for foreign trade, a mechanism similar to the swaps with China. Argentine importers will be able to pay for their purchases in pesos and the Brazilian government will convert them into reais.

For Brazilian exporters working with Argentine clients, the new scheme envisages the use of a financing mechanism from the Brazilian banking system to likewise allow them to avoid using the dollar.

This will alleviate the demand for reserves, at a time when the Argentine Central Bank is almost out of immediately usable foreign currency.

According to the Brazilian Vice Minister of Finance, around 210 Brazilian companies trade with Argentina. The Brazilian authorities view their neighbor as “an important commercial partner, mainly in industrial products, which have higher added value”.

“The problem that exists is the convertibility of the currency,” said Galípolo. “You are going to sell in pesos in Argentina, and when you have to pay that loan here, what is going to happen is that you have a convertibility problem. Will the volume of pesos obtained from the sale, when it is converted to [Brazilian] real, be enough to pay the debt? The whole complexity of the structure is how you manage to solve the problem of convertibility in a trade that today is carried out with a currency of a third country [the U.S. dollar] that does not participate in that trade.”

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