Brazilian Finance Minister Fernando Haddad and Argentina's Economy Minister Sergio Massa have announced an agreement to fund Brazilian exports to the tune of US$600 million.
The deal between the two Mercosur partners, which comes with Argentina facing a severe economic crisis and lack of foreign currency, comes after months of talks between officials from both nations to prevent paralysis in bilateral trade.
The mechanism to ensure the purchase of Brazilian products by Argentina will chiefly benefit the auto-parts sector, and the food sector to a lesser extent. It will involve the Bank of Brazil (BB), the National Bank for Economic and Social Development (BNDES) and the Development Bank of Latin America and the Caribbean (CAF), Massa confirmed on Monday after a meeting with Haddad and President Luiz Inácio Lula da Silva at the Planalto presidential palace in Brasília.
“The BB will guarantee Brazilian exports, and the CAF will act as guarantor,” Haddad said.
The Brazilian minister explained that the operation must still be approved in September by the CAF, once both countries submit documents to back the exports.
“When you export auto-parts to Argentina, you guarantee foreign currency for that country,” Haddad said, adding that supplies to the neighbouring country will then have the subsequent capacity to sell cars to Brazil and honour payments.
Haddad offered only last week to re-establish the trade flow to Argentina using yuan, the Chinese currency, as a payment method, but that option was set aside to Brazilian surprise. Buenos Aires was not keen, he explained, as it would mean “giving up reserves."
Massa said he had secured “the agreement to finance exports from Brazil to Argentina, which gives us US$600 million of leeway in terms of reserves with a guarantee from the Development Bank of Latin America."
"It ensures work for the auto and auto part sector in Argentina for the rest of the year until we can reinstate the reserves that the drought took away," he told reporters in Brasília.
Massa thanked Haddad, whom he called a “fabulous host,” for his “good will” during a “critical” time for Argentina.
At a later press conference, the economy minister also announced the reopening of the Brazilian market for poultry exports from Argentina, which had been closed previously due to bird flu concerns.
Massa also stressed the reopening of the joint construction of the naval fleet between Argentina and Brazil “to gain back some presence in the regional naval industry, on the understanding that Brazil and Argentina have the longest coastlines on the continent."
He also said the move would "ensure the Santo Tomé-Sao Borja border pass, which for one more year continues with the documentary mechanism facilitating the crossing from either side of the border to the other."