Far from implementing a common currency, the true objective of the Kirchner government was to decompress a new line of commercial credit in reais to postpone the depletion of the Central Bank’s international reserves. The trade deficit with Brazil is expected to increase.
President Alberto Fernández and President Lula da Silva finally ratified a new agreement for the financing of commercial lines. Far from realizing a common currency to fight inflation, Argentine authorities actively sought some kind of financial safeguard to finance imports that today must be restricted by the exchange rate.
Under the agreement between lawyers Sergio Massa and Fernando Haddad, who are Ministers of Economy of Argentina and Brazil, respectively, the Brazilian government will grant financing to pay for Argentine imports within 366 days.
Banco do Brasil will finance the sale of Brazilian companies in Argentina. Lula gave the green light to these measures because, in practice, Argentina’s paratariff restrictions limited Brazilian export potential and prevented supposed “free trade” in the Mercosur area.
From an Argentine point of view, importers of goods from Brazil will no longer have to wait 180 days to access foreign currency in the official market, but will be able to request a letter of credit from Banco Nación to complete the import operation immediately.
In this way, a new commercial channel is opened with Brazil that will allow overcoming the extreme difficulties involved in operating the dramatic SIRA system. In short, a patch for a problem self-created by the unusual measures of Kirchnerism.
For the Central Bank, this mechanism implies postponing the use of international reserves to finance imports for a period of 12 months, which is the “gain” in terms of time to postpone the fall in the exchange rate and avoid accelerating the devaluation of the market official even more than has already been done.
As we have already anticipated, the main motivation of the Argentine government was not to implement a common currency to combat the inflationary explosion, but rather to obtain some instrument to reduce the shortage of reserves faced by the Central Bank in the context of the exchange rate imposed since 2019.
“It is not about Minister Paulo Guedes’s idea of a single currency, planned instruments that did not work out or payment in local currency, but about offering a guarantee so that we can advance in trade in the way that President Lula and President Alberto Fernández intend ”, explained Minister Haddad.
What used to be a problem between importers and the BCRA now becomes a mediation between Argentine public banks and their counterparts in Brazil, and after 366 days the operations must be canceled.
What has not yet been fully defined is the amount at which Banco do Brasil will finance Argentine imports. Preliminary estimates point to a commitment of up to US$ 13 billion by 2023, a value very close to the US$ 16 billion of imports that annually come from Brazil, according to INDEC.
The agreement would seek to cover most of the annual volume of trade between the two countries, at least until 2023, without compromising the Argentine Central Bank’s exchange rate position in the short term.