The proposal for a common currency for commercial transactions with Argentinain a process that will have as a first step the implementation of a financing mechanism for exports from the neighboring country, aims to face a problem of lack of foreign currency in the Argentine economy and allow the Brazil recover ground in the commercial relationship with an important consumer of industrialized products in the country, said the Minister of Finance, Fernando Haddadin this Monday.
“Whoever is offering medium and long-term financing is taking a trade that would be natural between Brazil and Argentina”, said Haddad to journalists in Buenos Aires, citing the China as the main competitor, not in the quality of the products, but in terms of financing.
“Our manufacturing exports are to South America. If we lose this space, deindustrialization in the region increases”, she added.
Argentina is the third main destination for Brazilian exports and the third main source of Brazilian imports. In 2022, of the total of US$15.4 billion exported by Brazil to Argentina, 91% were in industrialized products.
After stating in a speech that part of this new engineering will involve the financing of exports by Banco do Brasil through letters of credit, which brought down the bank’s shares, Haddad denied that there would be a risk for the state bank or any other financial institution.
“Banco do Brasil will not take any risk with this export credit operation. We are going to have a guarantee fund, which is a sovereign fund, which will guarantee the letters of credit issued by BB for Brazilian exporters”, repeating that a guarantee system is being negotiated with Argentina.
The risk for the bank, says Haddad, is just the conversion between the peso and the real. Today, with 30 days, the bank’s loss is small. As the term increases, it may become longer, but then, he explains, the export guarantee fund comes in.
At the same time, the Brazilian government is negotiating that, with each operation, the Argentine government will offer collateral with international liquidity, which may be debt securities from stable countries or futures contracts for the sale of commodities, for example.
In case the Argentine company does not honor its commitment to the Brazilian bank and the guarantee fund has to be activated, the Brazilian government would be able to recover the resources.
Haddad and his Argentine counterpart, Minister Sergio Massa, repeated several times that the proposal does not involve a single currency, as defended by the e-minister of Economy in the Jair Bolsonaro government, Paulo Guedes.
“My predecessor defended a single currency, that is not what we are talking about, it is not about Paulo Guedes’ idea, it is about advancing in the foreseen instruments that did not work satisfactorily”, he said.
The minister cited as examples that did not work well the possibility of payment in local currency by both countries and the CCR (Reciprocal Payments and Credits Agreement), a compensation mechanism between central banks.
He stated that the initiative goes beyond an engineering for payment in local currencies, but does not aim to become something similar to a euro, the single currency of the European Union.
In August 2021, Guedes stated that a single currency for Mercosur would enable greater integration and a free trade area, and would create a currency that could be one of the “five or six relevant currencies in the world”.
This Monday, the executive secretary of the Ministry of Finance, Gabriel Galípolo, also explained that the idea of creating a common currency for transactions between Brazil and Argentina has nothing to do with replacing national currencies.
“It is a proposal from a clearinghouse so that we can make trade in the region viable so that it is not dependent on and conditioned by the supply of dollars, which is conditioned by US monetary policy,” he told Reuters.
Haddad also said that the integration of Latin American countries should be “a little more radical”, mentioning that “Mercosur was a great initiative, but I think the time has come to be more ambitious”.
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