Lula may make the same mistakes as in the past by helping Argentina

The president of Argentina, Alberto Fernández, arrives in Brazil for the fourth time this Monday (26). Experiencing a serious economic crisis, the South American neighbor sees in the Brazilian government a chance to get help to overcome the economic moment and that is why the Argentine has sought to strengthen relations with Luiz Inácio Lula da Silva (PT). With the options viable, however, the Brazilian representative runs the risk of repeating the serious mistakes of the past.

Longtime partners, Lula even told Fernandez that he intends to “do everything” to support Argentina. according to People’s Gazette found out from a member of the Argentine government, the country has sought to attract the interest of the South American giant so that this help comes through financing Argentine works.

“The president [Lula] He hinted at the possibility of incentives for Brazilian businessmen who are interested in completing the gas pipeline. This movement, if it advances, should follow the line of financing for the export of goods and services with contributions to Brazilian companies to perform services abroad”, analyzes political scientist Ariane Roder.

Although there are still no details of what has been agreed between the two countries, at the moment, it is known that there is a negotiation for financing through the National Bank for Economic and Social Development (BNDES) for the completion of the Néstor Kirchner Gas Pipeline. The facility is located in the Vaca Muerta region, a geological formation located in northern Patagonia, Argentina, and promises to ensure energy self-sufficiency for the country within two years.

The strategy, however, causes concern due to the recent past of scandals involving Brazilian construction companies, as well as the billionaire default left by Venezuela when Brazil tried to help it through the same model. The situation, according to experts, causes a malaise in politics and Lula has found himself with almost no practical options to help the neighboring country.

Brazil-Argentina Joint Declaration

This year alone, the leaders had four meetings and this second’s agenda should strengthen the bilateral relationship with Brazil, as the Argentine source told the report. The meeting on the 26th should mark the end of negotiations on the Joint Declaration, a document signed by Lula and Fernández in January of this year, when the Brazilian representative traveled to Buenos Aires.

The document provides for a series of bilateral agreements with the aim of strengthening the relationship between the countries. Among the 82 points listed, there are those that involve the trade relationship with the aim of facilitating negotiations and helping Argentina to take an economic turn. The text also determines the “reactivation of the Bilateral Production and Trade Commission to define lines of action in order to promote greater access to the respective markets and overcome obstacles to bilateral trade, reiterating the need to work towards growing regulatory convergence and facilitating the business”.

The document signals for the countries to work on the construction of the Action Plan for the Relaunch of the Brazil-Argentina Strategic Alliance. This Plan, prepared by Itamaraty and based on the agreement of the Joint Declaration signed in January, should suggest effective actions to the Argentine government. This Monday, with the new document finalized, Alberto Fernández should sign the treaty for the Relaunch of the Strategic Alliance of the two countries.

But, in addition, according to the member of the Argentine government heard by the report, the president’s visit will discuss bilateral trade agreements, the end of the use of the dollar for negotiations between the two countries, a possible accession of Argentina to the Bank of BRICS – a group formed by Brazil, Russia, India, China and South Africa – and financing works through the BNDES. According to the Itamaraty, there is great binational interest in financing Brazilian companies in phase 2 of the construction of the Presidente Néstor Kirchner Gas Pipeline, as well as in the export of products.

Financing of the Argentine gas pipeline

Of great interest to the governments of Lula and Fernández, access to financing works for the Argentine gas pipeline has been the subject of negotiations between the two countries for almost six months and is foreseen in the January declaration. In the document, point 22 says that the countries “undertook to jointly assess, with a sense of priority and urgency, the financing of strategic projects of binational interest, such as the Presidente Néstor Kirchner Gas Pipeline”.

This contribution is further detailed by point 21 of the same document, which says: “[Os governos] instructed their work teams to advance in common actions through BNDES, BICE and Banco Nación, with the aim of funding foreign trade and increasing the lending capacity of Latin American development banks through synergies between CAF [Banco de Desenvolvimento da América Latina] and FONPLATA [banco de desenvolvimento de Argentina, Bolívia, Brasil, Paraguai e Uruguai]”.

This strategy, however, is seen with caution, according to Ariane Roder. “This movement was highly criticized due to the scandals that involved Brazilian construction companies in the recent past. However, it should be noted that all countries in the world offer support, through specific public policies, for the internationalization of their companies in different ways, because they understand that this generates jobs and income nationwide, in addition to other benefits for the economy and for the country’s strategic interests,” he said.

BNDES has already financed US$ 2 billion in engineering works in Argentina. There are no outstanding debts, but there is still $27 million due.

Brazil may make the same mistakes as in the past when financing an Argentine gas pipeline

In addition to the scandals involving large Brazilian companies, such as Odebrecht and Andrade Gutierrez, there is also the risk of a default, such as those given by Venezuela and Cuba. During the governments of Dilma Rousseff (PT) and Lula, Chavismo turned to Brazil to finance infrastructure works on Venezuelan soil, such as line 2 of the Caracas subway and the Usina Siderúrgica Nacional. There were US$ 1.5 billion in loans made by the National Development Bank (BNDES).

The overdue debt of the Cuban dictatorship was US$ 268.57 million plus 188.21 million euros in September last year. Part of these overdue amounts was contracted for works to expand and modernize Porto Mariel.

These works were carried out by Brazilian companies and the money was borrowed through them. The country contracting the construction, however, is responsible for returning the amount borrowed. In the event of default, as occurred with Venezuela, the BNDES calls the Export Guarantee Fund (FGE) to receive the amount owed by the foreign country and when calling it. The Union assumes the debt and Brazil is the one who should start charging the debtor country. In theory, the same has been discussed to be done with the Néstor Kirchner Gas Pipeline.

Due to the country’s economic crisis and the debts that Argentina already has with the IMF (US$ 44 billion), Rogério Pereira de Campos, doctor in Social Sciences and researcher at the Araporã Foundation, assesses that access to subsidies offered by the BNDES causes “malaise and resistance”, in addition to “internal debates on the use of the state bank in strategic projects outside Brazil that may not generate the desired return”.

Even though these financings could turn the Argentine economy around, Brazil could make the same mistakes as in the past by releasing billionaire investments to a country in economic crisis. With the aim of curbing the damage that these financings can leave in Brazilian coffers, several parliamentarians presented proposals with the objective of protecting public resources from political interference in the approval of contribution projects carried out by the bank.

Among the proposals presented over the last few months, there are deputies who defend the end of these loans and others who ask for more cautious measures, such as the end of financing for countries that already have overdue debts. “For countries that have already defaulted, there should be a ban,” said deputy Kim Kataguiri (União-SP), author of one of the bills on the subject. The proposals, however, have not yet advanced in Congress.

Lula’s attempt for Argentina to gain access to the Banco dos Brics fails

Trying to keep his promise that he would do everything to support Argentina, Lula even asked the neighboring country for help through the New Development Bank (NDB), the so-called Banco dos Brics. Under the command of former president Dilma Rousseff (PT), Lula requested that the organization provide credit to the country, but was denied the request.

The petista still tried to mediate a change in the organization’s bylaws so that the credit to Argentina would have the destination that Fernández “well understood” – the group’s legislation provides that the value is destined to infrastructure works in the country that requested the credit – and destined only to member and associated countries, which is not the case of Argentina.

With the aim of alleviating the Argentine financial crisis, Lula also did not have the quorum to obtain guarantees for financing Brazilian exports to Argentina. The Brazilian president went so far as to state that he encountered “difficulty” when trying to change the organization’s bylaws. With his hands tied, the PT seeks solutions that can come directly from Brazil.

For specialists, however, care must be taken with actions to help the neighboring country, as Brazil is also experiencing a period of economic recovery. “We are an economy that is also rebuilding itself, especially in the industrial sector. This first biennium of the Lula government has the objective of resuming economic growth and gaining new impetus to achieve greater freedom for investments from 2025”, points out Campos.

In addition to trade, ideological agenda motivates Lula to help Argentina

On the other hand, for experts, helping Argentina can boost the Brazilian economy. The country is Brazil’s largest trading partner in South America. A survey carried out by People’s Gazette previously shows that the bilateral market moved, in the last 26 years, around US$ 25.5 billion annually. With mostly surplus transactions for Brazilian coffers, in the last five months alone, there was a balance of US$ 2.4 billion for Brazil.

Brazil exported more than it imported to its South American neighbor. In Campos’ analysis, these trade agreements that Lula has negotiated with Fernández can “help the economy of the South American neighbor, increasing job offers and channeling products of interest to Brazil, at the same time allowing an increase in gains in the economy Argentina”.

Due to the economic difficulties faced in Argentina, Fernández fears he will not be able to finish his term as president, which comes to an end this year, and for that he also counts on Lula’s support.

In addition to the bilateral meetings, the current Argentine head of state came to Brazil for the PT’s inauguration, in January 2023, and also visited him in Curitiba, in July 2019, when Lula was in prison.

With a management with 81% disapproval, the Peronist president has already declared that he does not intend to be re-elected. “On December 10th, I will hand over the presidential sash to whoever is elected at the polls by popular vote. I will work to make it a partner or partner in our political space,” said the Argentine president.

With Fernández out of the running and his high rejection rate, electoral disputes make room for a right-wing president to come to power, which could make relations with Lula difficult. “In this sense, there is a strategic diplomatic importance in supporting Argentina in its restructuring and, in a way, it helps to prevent right-wing candidates and policies from gaining discursive strength in the neighboring country, which would impact on this government’s Brazilian foreign policy project” , points out Ariane Roder.

For Campos, the strategy of seeking ways to finance works in Argentina is also part of an ideological prerogative that Lula and Fernández share. “Governments with a more left-wing political alignment have always defended the protection and use of these resources [como o acesso ao BNDES] for local benefit and development, while the axis facing the political right defends free trade and competition. At that moment, what we see is a resumption of the first mentioned philosophy, to guarantee the exploitation and use for the Mercosur region, especially Brazil, of these energy reserves”, analyzes the political scientist.