The President of Argentina, Alberto Fernández, made an urgent and fleeting trip to Brasilia on Tuesday to meet with his counterpart Luiz Inácio Lula da Silva and with the economic team of the Government that he leads. The Brazilian wants to throw a lifeline to his ally and friend; For this reason, he is looking for a formula to help alleviate the pressing lack of dollars in which Argentina is plunged as a side effect of the drought. The main proposal on the table is for Brazil to open a line of credit so that Argentina can continue buying goods from Brazilian companies without having to dedicate precious dollars to payment now.
Fernández has arrived in the Brazilian capital in the company of the Minister of Economy, Sergio Massa, and the Foreign Minister, Santiago Cafiero, shortly before six in the afternoon. The presidents of Brazil and Argentina plan to have dinner together after the meeting. The visit —on this first working day of this short week— was agreed five days ago in a telephone conversation between the two. According to the formula proposed by the Brazilian government, and revealed shortly before the visit, the payments to the companies would be guaranteed by an official Brazilian entity.
Argentina has been suffering from a foreign exchange generation problem for decades that hinders its growth and for which no recent government has found a solution. But the situation has gotten much worse so far in 2023 due to the worst drought in the last 60 years, which has dealt a severe blow to the countryside, the main source of income for dollars. The lack of rains will cause losses to agricultural exports that oscillate between 15,000 and 20,000 million dollars, which is equivalent to more than half of the international reserves held by the Central Bank.
If Lula’s proposal to Fernández materializes, it could be a relief for the Argentine at a time when the lack of dollars has exacerbated the serious inflationary crisis and in the midst of the electoral campaign, although the current president has already said that he will not seek re-election.
Going to the aid of his counterpart helps the Brazilian president rebuild his profile as a regional leader now that he has returned to power for a third term. In addition, Lula feels very close to Fernández, he does not forget that he visited him in prison and asked for his freedom even during the electoral campaign.
The debt restructuring agreement signed with the International Monetary Fund in 2022 established that Argentina should increase its annual reserves by 5,000 million dollars. It managed to meet the target last year, but the fall in production prevents it from repeating that result in the current year. In the first four months of this year, the Argentine monetary entity has lost more than 9,000 million dollars in reserves, up to the current 35,296.
To stop the bleeding of foreign currency as much as possible, the Fernández government has implemented a series of measures, among which are different exchange controls in the stock market, benefits for agricultural exporters, restrictions on imports and increases in gas prices. and electricity aimed at reducing the energy bill.
In parallel, the Executive is negotiating bilateral agreements with other countries in order to reduce dependence on the dollar in their commercial transactions. The trip to Brazil comes just a week after Economy Minister Massa announced that Argentina will replace the US currency with the yuan to pay for imports from China. In 2022, 21% of Argentina’s purchases abroad were made from the Asian giant, for a value of 17,502 million dollars.
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