Timerman, Brazilian counterpart fail to seal deal that could ease complaints over trade barriers
Foreign Minister Héctor Timerman failed to reach an agreement yesterday with his Brazilian counterpart that could help unlock the ongoing tension between the two key Mercosur allies over bilateral trade.
Brazil’s Mauro Vieira and Timerman met with other key Argentine officials at the Pink House, but concrete proposals that could help ease Brazil’s growing concerns about restrictions on the flow of goods were pushed forward to an undetermined date.
Timerman acknowledged that trade between the two countries needs some “fine-tuning”, although he was full of warm words for the neighbouring country, saying Argentina considered Brazil its “most strategic partner.”
Despite these lofty words, the two sides were only able to agree to a “meeting in the next few weeks at deputy-ministerial level to deal with the economic issues surrounding our relationship.”
Sources close to the meeting said the now-infamous DJAI import permit was the main stumbling-block of the meeting.
During the meeting, Timerman was joined by some of the country’s top economic officials, including Economy Minister Axel Kicillof, Federal Planning Minister Julio De Vido, Cabinet Chief Jorge Capitanich and Industry Minister Débora Giorgi.
Before the trip, Brazil’s Development Minister Armando Monteiro said there’s “discomfort” with Argentina because of the “steeper controls on imports through affidavits” and the “difficulties buying foreign currency.”
Brazil’s concerns were backed by the Argentine Chamber of Commerce (CAC), which issued a report stating that trade within Mercosur was down 10.6 percent in the first three quarters of 2014.
The report highlighted Argentina’s outsized role in that decline, pointing that the country’s activity inside the trade bloc had declined 16.3 percent in the third quarter of 2014. According to the CAC, this meant that the trade bloc was “losing relevance,” failing to accomplish its stated goal of increasing regional trade.
Local lobbying against import restrictions has been high over the last few weeks, with the CIRA importers chamber also calling on Central Bank governor Alejandro Vanoli to authorize the sale of Central Bank dollars to ensure purchases abroad could be completed.
Yesterday, foreign trade operated normally, but that meant the Central Bank lost around US$40 millions of its foreign currency reserves.
Imports from Brazil decreased 25 percent last year, according to the INDEC statistics bureau.
Brazil’s devaluation
Brazil’s concern over securing exports to Argentina came amid a continued decline of the value of its currency, as the real hit a new record-low yesterday, falling to 2.87 reais to the dollar, its weakest position in more than 10 years.
Ongoing concerns about the deterioration of Brazil’s economy, combined with expectations of higher US interest rates, have contributed to the real’s roughly six percent fall since the beginning of February.
Data released yesterday showed that retail sales declined the sharpest pace on record in December, capping their weakest year since 2003, as inflation expectations continue to climb, while economic growth forecasts increasingly point to another recession.
Although experts don’t think Brazil’s devaluation will directly affect trade with Argentina, Dante Sica, the head of the Abeceb consultancy, said yesterday that the devaluation would “increase the competitive gap between Argentine and Brazilian products,” which could have negative consequences for Argentina’s production.
As Argentina’s exchange rate remains relatively quieter than Brazil’s, Argentine exports could suffer a blow, which would ultimately reduce the amount of dollars available at the Central Bank’s coffers, making the bank more wary of authorizing imports.
Sica says Argentine business leaders are worried about the possibility that the evolution of the real will lead to increased import restrictions.
Role of China
In reply to concerns about the increased ties with China leading to a reduced focus on the Mercosur trade bloc, both Foreign ministers agreed this was not the case.
“A strategic relationship with Argentina doesn’t exclude other countries,” Vieira said. “The relationship with China is open and intense in all countries in the region.”
China’s growing role in Mercosur countries was instead seen as another factor tying its members together. “I don’t think the deal with China goes against the Mercosur,” Timerman said, “it actually strengthens it.”
Source: Buenos Aires Herald