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ECONOMY | 03-05-2023 16:38

Argentina and Brazil mull trade credit lines bypassing US dollar

Over 200 Brazilian firms eye exporting in reais, not dollars; Lines would lift exports to Argentina amid its currency crisis.

Argentina and Brazil are working to boost their bilateral trade and recover market share lost to China with credit lines in reais that bypass the US dollar, according to an Argentine government official who met with counterparts in Brasília.

Next week, representatives from the economy and industry ministries of both countries will discuss ways to implement those credit lines.

Under the new mechanism, imports to Argentina would be fast-tracked, reducing approval times to 30 days from 180. Banks involved as counterparts in the credit lines will most likely be state-run, said the official, who requested anonymity since the discussions aren’t yet public.

The talks between South America's largest economies come with Argentina facing major challenges such as dwindling international reserves, inflation running above 100 percent per annum and a slumping peso. Trade between the two nations has taken a multi-billion dollar hit in recent years, according to government estimates. At least 210 Brazilian companies in sectors such as iron, steel, garments, agriculture and automobiles would be interested in joining the credit lines.

Brazilian officials will now work on a system to finance and guarantee payments, similar in function to an escrow account. The lines would help the country's export goods regain market share in Argentina, after falling from around US$19 billion in 2013 to US$13 billion in 2022.

Argentina's President Alberto Fernandez met his Brazilian counterpart Luiz Inácio Lula da Silva in Brasília on Tuesday, where they discussed ways to help Argentina overcome its financial crisis.

A record drought is worsening the nation's prospects as the government makes efforts to secure lines of credit with multilateral organisations to support soybean producers, as well as the creation of multiple exchange rates to boost exports ahead of October's presidential election.

Fernández is also seeking a reworking of Argentina's agreement with the International Monetary Fund, which recently passed its fourth review, to raise disbursements under the extended fund facility programme to US$28.9 billion. Lula said he will work for changes in the Fund's policies to prevent countries from being "asphyxiated" by the institution.

The support of a key trading partner like Brazil is very important in negotiations with the Fund, he said. So far there have been no indications that the multilateral lender is willing to extend disbursements.

by María Eloisa Capurro, Bloomberg

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