Brazil to sign new credit line with Argentina
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Emerging Markets

Brazil to sign new credit line with Argentina

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Brazilian and Argentinian officials insist bilateral trade finance arrangement will only involve commercial banks

Brazil and Argentina are poised to sign a new credit line that will boost their bilateral trade.

The Brazilian minister of foreign trade, industry and development, Mauro Borges Lemos, is flying in to the IDB meeting in Costa de Sauipe, Brazil, as technicians iron out the final details of a memorandum of understanding in a bid to straighten commercial ties between the two main Mercosur partners.

Details of the bilateral trade finance arrangement, including guarantees, are yet to be confirmed, but officials insist the mechanism will only involve commercial banks and that neither the state-run Brazilian development bank (BNDES), the treasury or the central bank will be part of the deal.

Brazilian exporters have suffered from an increase in non-tariff barriers and protectionism from Argentina as a result of its lack of dollars and the drop in international reserves.

The fresh credit line, the amount of which depends on the demand of exporters and importers, would help eliminate most non-trade tariffs imposed by the Argentine authorities, according to Brazilian officials.

Lemos said the amount of credit could vary and would not be capped. In remarks after a Congress hearing in Brasilia, he referred to “an open system, driven by demand — there is indeed no cap because it is a more ingenious system”.

Such “creative and innovative engineering” is an attempt to “revive bilateral trade that suffered a sharp drop in recent years”, an official said. This is critical to Brazil as Argentina, as well as being its third largest single trade partner, is one of its main export destinations for manufactured products, particularly cars. Similarly, Argentina traditionally exports a lot of spare parts to Brazil.

Bilateral trade has been in decline for more than two years, falling 21% in 2012, but with Argentina accounting for 8% of total Brazilian exports, the potential is there for this to grow.

Brazilian exporters have been wary of devaluations not only in Argentina but also in Venezuela, another Mercosur partner.

Foreign trade experts said that Brazilian exports to Argentina and Venezuela could drop by as much as $4bn this year if nothing changes.

The pending credit line is also an initiative that could inject new blood in Mercosur, as the Southern cone members prepare to present their offer to the European Union ahead of free trade talks between the two blocs.

Brazil and Argentina are said to be close to a consensus after lengthy negotiations in order to reach a common proposal on trade liberalisation to their EU counterparts.

Argentina’s finance minister Axel Kicillof and the central bank governor of Argentina Carlos Fabregas are also expected to negotiate some $900m in fresh disbursement from the IDB in Brazil this week.

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