Argentina and Brazil plan to advance in the discussions on a common South American currency during the visit of the Brazilian presidentLuiz Inacio Lula da Silvato Buenos Aires, as ratified this Sunday by the Argentine government, although officials and analysts do not expect it to be implemented in the short term.
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“We decided to advance the discussions on a common South American currency that can be used for both financial and commercial flows, reducing operating costs and reducing our external vulnerability,” says a statement from the Government of Alberto Fernandezon the occasion of the visit of Lula da Silva.
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“We intend to overcome the barriers to our exchanges, simplify and modernize the rules and encourage the use of local currencies,” he adds as one of the agreements to relaunch the strategic alliance between the two countries.
A common South American currency that can be used for both financial and commercial flows, reducing operating costs and reducing our external vulnerability.
The plan – which will be discussed during the visit of Lula, who arrives in Argentina this Sunday and will meet with his counterpart on Monday to sign a series of agreements on different topics – includes the possibility that the common currency spreads to other countries, according to official sources.
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“There will be… a decision to start studying the necessary parameters for a common currency, which includes everything from fiscal issues to the size of the economy and the role of central banks,” Argentine Economy Minister Sergio Massa said. to the daily Financial Timesas published this Sunday.
According to the minister, “it would be a study of trade integration mechanisms,” although he pointed out that He did not want to “create false expectations” because “it is the first step on a long road that Latin America must travel.”
Long term
“None of what he says are short-term measures,” the director of the Abeceb consulting firm and Minister of Production during the Mauricio Macri administration (2015-2019), Dante Sica, told EFE.
Sica recalled that during that term progress had been made in a letter of intent between both countries to start studying the possibility of having a common currency through a program with the Inter-American Development Bank, and that it was the Brazilian central bank that stopped the initiative.
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According to Sica, “the resistance of the Brazilian central bank is strong” because Argentina has an inflation of 94.8% in 2022 and the private ones project 98.4% in 2023, according to the expectations surveyed by the Argentine Central Bank, and “It does not have a consistent program to lower long-term inflation.”
“The currency as a whole is built with a high level of confidence, established macroeconomic policies, and similar inflation ranges,” Sica added, since inflation of 4.8% is projected in Brazil in 2023.
Alternatives
As an intermediate path, Sica indicated that a currency swap could be enabled, which both Administrations have been negotiating since last year. In this way, instead of doing a daily balance to see which country puts up the dollars to liquidate exports, it would be done every six months.
“That is financing, it is not a single currency,” Sica clarified, so both countries must agree on an interest rate.
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It is a currency to which the peso and the real would be quoted and which would be used to pay for the transactions of the companies of the two countries so as not to depend on the dollar.
In the same sense, the general director of DNI Consultores, Marcelo Elizondo, explained to EFE that Massa’s team talks about a project for a common currency for commercial exchanges between companies in the two countries.
“It is a currency in which the peso and the real would be quoted and that would be used to pay for the transactions of the companies of the two countries so as not to depend on the dollar,” Elizondo explained, indicating that this new currency would be like a “nomenclator with conversion to national currencies.
Likewise, Elizondo explained that “it requires the coordination of the two countries and the two central banks,” noting that the Brazilian bank is autonomous but the Argentine bank is dependent on the Executive Branch.
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In addition, transactions between individuals from the two countries would require “an agile response” from the two central banks to cover what was previously done via the dollar, which implies “giving in” to the policy of restrictions on imports and the delivery of goods. currencies to pay for foreign purchases applied by Argentina due to the lack of international reserves.
Brazil is Argentina’s main trading partnerwhich closed the commercial relationship with the neighboring country in 2022 with a deficit of 2,250 million dollars, although less than the average of 3,500 million dollars registered between 2004 and 2018, according to Abeceb.
The return of Lula da Silva to power -after former Brazilian President Jair Bolsonaro (2019-2022) had a bad relationship with the Fernández government- has raised expectations of deepening the bilateral relationship between Argentina and Brazil, but economists highlight the power of Brazilian institutions.
EFE
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