In a globalized world, one country can be affected by an event that occurs in another, especially if such an event is a presidential election that determines a radical redirection in the international policy of its main trading partner, and of the largest and most powerful country in the subcontinent and of the economic bloc of which it is a part. Or if it is an attempted coup against the new leader who embodies this redirection.
Such is the case of the indissoluble relationship between Argentina and Brazil. The coup attempt perpetrated this Sunday in Brazil by Bolsonaro fanatics is an event of enormous relevance for our country. The consequences are not only political, they can also be economic.
Brazil, a weighty partner
Brazil is our most important trading partner, occupying the first place as a destination for Argentine exports and the second place in imports (only below China), according to the National Institute of Statistics and Censuses (INDEC). Only in November, merchandise was exported to the neighboring country for US$ 1,144 million and merchandise was imported from the same country for US$ 1,120 million. Trade is especially dynamic in the automotive sector: Brazil is the main foreign destination for domestically manufactured cars and also the main origin of imported ones. In turn, it has a leading role as a supplier of auto parts used in vehicle assembly processes in our country.
- USD 1,144 million
- It is the amount of Argentine exports to Brazil during the month of November.
However it should be noted that in 2022 the bilateral trade relationship was deficient for our country. According to provisional data from the Brazilian Ministry of Economy, Argentina had a negative trade balance of US$2.25 billion with that partner.
On the other hand, 20.6% of foreign tourists who arrived in our country in 2022 came from Brazil, which placed it in first place in receptive tourism, according to the Ministry of Tourism and Sports of the Nation. In turn, Brazil is the destination most chosen by Argentines who decide to do tourism abroad: 19.5% of compatriots chose it in October, reported INDEC.
- 20,6%
- It is the percentage of foreign tourists in Argentina that came from Brazil in 2022.
Generally, Brazil was the second destination and origin of the balance of services of Argentina during the third quarter of 2022, ranking first in travel and transportation. Likewise, it was the country with which Argentina recorded the highest surplus in the exchange of telecommunications, computer and information services during the period (+63 million dollars).
What has been said so far highlights the relevance of the bilateral real exchange rate. On the Argentine side, the crawling peg seeks to closely monitor the high inflation rates to avoid a greater exchange rate delay. On the Brazilian side, after Lula’s inauguration, the real depreciated by more than 3% and with inflation at very low levels.
- USD 2.250 million
- It is the trade deficit that Argentina accumulated with Brazil throughout the year 2022.
Considering the stock of foreign direct investment by country, Brazil is the fourth largest foreign investor in our countryaccording to data from the Central Bank of the Argentine Republic (BCRA).
Although it does not finish taking off, The Brazilian economy is one of the 15 largest in the worldand it has a very powerful industrial sector and more than vast international reserves in the coffers of its central bank.
In short, the performance of the Brazilian economy and the depth and fluidity of the bilateral relationship stand as fundamental pillars for our country.
Brazil and a crisis with possible economic effects
It could be said that the arrival of Lula Da Silva to the presidency of Brazil, after the tight victory of the Workers’ Party and its allies in the runoff, it had been one of the best news coming from abroad for the government of Alberto Fernández. On the Argentine side, it will seek to make the most of this circumstance to achieve one main objective: to strengthen the reserves of the Central Bank. In the previous one, the mechanisms studied for this are various.
However, the question now arises as to whether the institutional crisis in Brazil can leave this busy agenda in the background, which was one of Minister Massa’s letters to keep the markets calm in a first semester that promises not to be easy. In fact, Lula is scheduled to visit our country in the second half of January, but no one dares to confirm that the president will leave his country if the disorder persists.
Lula is scheduled to visit our country in the second half of January, but no one dares to confirm that the president will leave his country if the disorder persists.
The creation and adoption of a common currency as a means of payment for imports and exports between the two countries, a swap between pesos and reais to offset trade deficits that may exist in the bilateral balance, and financing from the National Bank for Economic and Social Development of Brazil to the next stages of the Néstor Kirchner gas pipeline These are topics that could remain unresolved if this crisis reached even more advanced stages..
Another possible economic effect is that, If this political instability translates into economic uncertainty, a further devaluation of the real, Brazil’s currency, is to be expected.. The most important consequence of this would be a loss of competitiveness of Argentine products in that country and a relative reduction in the price of merchandise from it. Besides, it would be cheaper for Argentine residents to do tourism in Brazil, and it would become more expensive for Brazilians to travel in Argentina. Therefore, the current red in the balance of trade and in the balance of services with Brazil could deepen, exacerbating the drain on reserves.
If this political instability translates into economic uncertainty, a further devaluation of the real, Brazil’s currency, is to be expected.
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