Economic instability in Argentina should harm exports in Mercosur

posted on 09/18/2022 03:30


President Alberto Fernández can’t tame inflation and doesn’t stop changing command in the Economy – (credit: AFP)

In a scenario of complete instability aggravated by the highest inflation in the last 30 years, which exceeds 70% annually, Argentina is going through one of its worst crises in history and the impacts go beyond the borders and reach the other Mercosur countries – also formed by Brazil, Uruguay, Paraguay.

The bloc’s main economy, Brazil currently has the highest level of exports to Argentines in the last four years. Between January and July 2022, they totaled US$ 8.9 billion – 34% more than in the same period in 2021 – according to data from the Foreign Trade Secretariat (Secex), of the Ministry of Economy.

The economic instability of the neighbors, however, worries Brazilian exporters and economists, who see this advance in bilateral trade as something temporary. For the professor of International Economics at the Pontifical Catholic University of Paraná (PUC-PR), Masimo Della Justina, the crisis in Argentina should cause a drop in exports from all countries in the Mercosur bloc. According to him, with the increase in import taxes in the country, the other members find it difficult to sell products to the non-neighbor, which defends protectionism.

“If Argentina, in crisis, imports less from Uruguay, Paraguay and Brazil, it negatively affects the production area. In this sense, the crisis in Argentina ends up imposing an economic cost on its neighbors, because the neighbors are not exporting that potential that they could export, they also get poorer or don’t realize this potential”, he evaluates.

Another Brazilian concern is losing even more commercial space to China. The Asian giant has been taking over Brazil’s space and has become the second largest exporter to Argentina, with 19.2% of the neighboring country’s imports. Meanwhile, the Chinese lead as origin, with 21%, according to data from Indec, a research institute of the Argentine government.

The leader of Ibef-SP’s Technical Committee on Treasury and Risk, Bruno Damasceno explains that the fear is valid, since the South American neighbor has never been in such a difficult period as the current one. “Brazil has lost its relevance to China as a trading partner, however, it still benefits from road transport, which ends up being cheaper. default on commercial debts”, he analyzes.

With a share of 4.6% of exports in the first seven months of the year, the neighboring country is the third main destination for Brazilian products. The data show that the current period has benefited national exports, even though “Brazil has to worry about liquidity, with a guarantee structure so that there is no credit problem”, according to Damasceno.


Rate increase

The lack of monetary reserves in dollars, essential for Argentina’s current transactions, is what most worries Brazil for exports of national products to the neighboring country. And the devaluation of the peso is increasing. Two years ago, the real was 15 pesos, and currently, the Brazilian currency is worth 26.7 pesos.

Damasceno, from Ibef-SP, explains that the country’s indexes have been the worst in the world, it is very difficult to have a creditor without political and financial restructuring. Furthermore, the country’s low economic stability is not the only factor that hinders exports to Argentina.

To prevent the outflow of US dollars from the country, Fernández’s government has been increasing import tariffs on products from countries such as China and the US, but also from the nations that make up Mercosur.

Although the measure aims to increase government revenue, the foreign trade consultant at BMJ Consultores Associados, Josemar Franco, explains that this has further increased the discontent of Argentine businessmen who export to the neighboring country.

“Mercosur’s purpose is to facilitate trade between its members and, above all, to keep in mind that it is a Common Market. So, it is not just a free trade area. There is a greater level of integration. That is why Paraguay, Uruguay and Brazil have questioned Argentina in relation to the application of these measures, because it has made trade between the bloc’s countries more difficult,” he says.

Since 2018, the Brazilian government, under then President Michel Temer (MDB), and the Argentine government, under Maurício Macri, have been planning a restructuring of Mercosur, with a review of the Common External Tariff (TEC), in order to allow a greater opening of the bloc with other foreign nations such as the Asian Tigers and the European Union.

However, with the election of the current leftist president Alberto Fernández in 2019, the differences between Brazil and Argentina only increased. With the Brazilian elections approaching, uncertainties only increase regarding the future of Mercosur. If ex-president Luiz Inácio Lula da Silva (PT) – who currently leads the polls for voting intentions – takes over the Planalto Palace in January 2023, the question is whether he will follow a more protectionist line or if he will assume a more conservative stance. little more liberal.

*Interns under the supervision of Rosana Hessel

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