Lula tries to help, but Argentina needs help the size of China or the USA – 05/20/2023 – Vinicius Torres Freire

Fernando Haddad is going to China at the end of the month to deal with Argentina. Or he must go, by order of Luiz Inácio Lula da Silva. It is not clear what the Minister of Finance will do there, for the Argentines. It would behoove Brazil to be part of an international effort to avoid a collapse within the Argentine collapse, with the risk of something worse than 2001.

Brazil can negotiate aid. But a bailout for Argentina depends on countries like China or the United States. For example, the Americans saved the FHC 2 government from implosion in 1998 with a bundle of cash and by giving orders to the IMF.

Sergio Massa, Minister of Economy of Argentina, will also be in China at the end of the month. He wants to convince the Chinese to accept even more international payments in their own currency (instead of the dollar) and to borrow more money.

Argentina is broken, once again. Given its reserves, until the end of the year it will not be able to pay the IMF and public debt creditors in dollars; there are no dollars for companies to pay their external debts.

Net international reserves are in the red or at zero. International reserves are “cash” in hard currency or equivalents. Apart from what Argentina cannot sell immediately or other assets that are stuck or blocked in some way, liquid reserves are left over, a somewhat imprecise account, it is true. In the current case of Argentina, imprecision makes no difference.

What’s more, you can always plunder the dollar savings of Argentines.

For months, Brazil has at least tried to invent a way to finance the sales of Brazilian companies that export to Argentina. Companies would receive theirs, they would continue selling. “Someone” would provide the credit. Who? The Argentines would pay later. With what?

Argentina burns reserves (sells) also to avoid further devaluation of the peso and thus contain even higher inflation, which in April was at 108.8% a year and accelerating. In practice, the government finances its deficit and domestic debt with central bank money, either directly or indirectly (“prints money”). It controls imports, which aggravates the recession, and capital (dollar) outflows. It has several exchange rates, another crude 1950s.

The country has been out of the world financial market since the 2020 default. It is trying to make advances with the IMF.
It is not even possible to summarize, now, the size of the Argentine problem, which has no currency (or usually has several) nor credit for the government, given the amount of defaults and ignorance in economic policy.
The country still has a higher average income than Brazil, despite 70 years of madness. But since 2008, for example, per capita income (GDP) has decreased (Brazil’s grew by a measly 7%, Chile’s, 25%, Colombia’s, 36%). This year, the GDP should shrink between 3% and 4%.

To make matters worse, the country suffers from the disgrace of the drought, which will reduce by a third the soybean and corn harvest and, therefore, exports. In normal production years, it would be able to push the external problem with its belly until the presidential election, in October. Now, he’s on the brink of another operatic explosion, with an ultra-right presidential candidate lunatic.

It is speculated that Brazil would try to find a way for the Brics bank to fix a sticking plaster for the Argentine accounts. Perhaps he will find a way to help by arranging credit for Brazilian exporters. They would be curatives in the bloodletting.
However, more needs to be done — and Argentina would have to be willing to put its house in order. Even in Brazil, it is difficult to convince the group, as can be seen from the discussion of the soft fiscal framework. In Argentina, which is way down in the circles of economic madness hell, it’s even more complicated.

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