Goodwill to help Argentina will end in animosity – 01/28/2023 – Samuel Pessôa

A friend went to Buenos Aires for a week. The city is beautiful, as always. One has the impression that Buenos Aires can withstand another hundred years of decay.

Anyone traveling to Argentina cannot use a credit card. The account will be charged at the official exchange rate. Each dollar is worth 184 Argentine pesos at the official exchange rate and 382 at the parallel exchange rate. That is, the value of US$ 1 in parallel is twice the official value.

Thus, those traveling to Argentina have to take paper money and exchange it at a place that does it at the parallel exchange rate. Argentina has yet to overcome the 1990s.

There is strong capital control, which prevents the free circulation of financial wealth and ends up establishing a regime in which the exchange rate formed by the market is much more devalued than the official exchange rate.

As international trade takes place at the official exchange rate, there is a strong disincentive to exports and a stimulus to imports.

Minister Fernando Haddad intends to institute a common currency for settlements between central banks of commercial operations between countries. The Agreement on Reciprocal Payments and Credits is already in effect today for several Latin American countries. Every four months, there is a reckoning between two countries and only the total balance of trade between countries is paid. Thus, the need for dollar liquidity is much less.

For Mercosur, there is the possibility given by the Local Currency Payment System, which “allows senders and recipients, in the countries that integrate the system, for operations of up to 360 (three hundred and sixty days), to make and receive payments referring to transactions business or benefits in their respective currencies”.

Payment instrument for international trade operations alternative to US currency already exists. The problem is that Argentina has no currency and no exchange rate.

The government’s proposal is for the Central Bank of Brazil to contribute part of its reserves to support balances in the new currency, the sur, and Argentina, which has no reserves, will receive a Brazilian credit to do so. At each time interval, the balance of bilateral trade is calculated and there is a transfer from sur to the surplus country, in this case Brazil.

Does anyone have any doubts that Argentina will default on sur? It certainly will. Evidently Brazil will have to defend its interests and collect the debt. There will be a diplomatic affair between the countries.
Argentines, who often crowd onto Avenida 9 de Julho shouting “Fora, IMF!”, will now crowd onto the same avenue to shout “Fora, Brasil!”

All the minister’s goodwill in helping Argentina to have international liquidity to finance its trade with us will end in default and animosity between societies. As happened in the case of the invasion of Petrobras refineries in Bolivia or Paraguay’s animosity towards the Itaipu agreement made under very favorable conditions for the neighboring country.

When it comes to Latin America, all we ever want is to find an external enemy to blame for our incompetence. Brazil does not have the resources to play this role. Let’s leave it to China.

The most important measure for encouraging trade between Brazil and Argentina is for our neighbor to fix the macroeconomy. It needs to have a currency and an exchange rate. Unfortunately there is nothing we can do to help.

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