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ECONOMY | 30-05-2023 16:30

Brazil sees Argentina in urgent need of another bailout

Lula's economic team considers that Argentina will soon need some sort of additional financial support, though details are not yet finalised.

Brazil President Luiz Inácio Lula da Silva’s economic team considers that Argentina, battered by spiralling inflation and a severe drought, will soon need some sort of additional financial support, according to a government official in Brasília familiar with the discussion.

The official, who requested anonymity to reveal internal discussions, described Argentina as a regional partner that’s too big to collapse, but not relevant enough on the global stage to convince the International Monetary Fund or even China to mobilise the additional resources the country urgently needs. 

The alternative, the person said, would be to seek support from Chile and Colombia, the two other major South American economies whose presidents are participating in a summit organised by Lula in the Brazilian capital on Tuesday.

Brazil has not yet figured out a plan to assist Argentina, the official added, and is unlikely to transfer funds directly to the country.

A spokesperson for Argentina’s President Alberto Fernández said the country has never asked for a bilateral loan but that Brazil and Argentina share the same perspective on the country’s situation. Lula has said he’s actively working to help Buenos Aires overcome the crisis.

Argentina’s economic problems are escalating as consumer prices soar 108.8 percent a year, raising concerns the country could spiral into hyperinflation territory just as it prepares for a crucial presidential election in October. Fernández’s administration has raised the benchmark interest rate to 97 percent, but failed to rein in inflation as the Central Bank keeps printing pesos to finance government spending.

Desperate to boost Argentina’s foreign reserves and avoid a messy devaluation of the peso, Fernández has dispatched Economy Minister Sergio Massa and a large delegation to China to negotiate a larger currency swap line with Beijing.

Lula has also asked his Finance Minister Fernando Haddad to attend a meeting of the New Development Bank, the bank of BRICS nations that include Brazil, Russia, India, China and South Africa, to lobby for alternative forms of assistance to Argentina. 

Haddad wasn’t able to travel to China, but has participated in the meeting remotely.

by Martha Beck, Bloomberg

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