MercoPress. South Atlantic News Agency

With an eye on Argentina and Venezuela, Brazil private sector wants Mercosur trade in local currencies

Business in reales and pesos and central banks acting as clearing houses

Brazil's private sector concerned with harsh times ahead, particularly with exports to Argentina and Venezuela are proposing that Mercosur trade should be done with local currencies leaving aside the US dollar. The initiative was launched by the president of the Brazil-Argentina Commerce Chamber.

 “Our proposal is to stimulate trade in local currencies through central banks” said Alberto Alzueta, chairman of the chamber. “The Brazilian exporter sells in reales and the Argentine buyer pays with Pesos, this will automatically increase trade and reduce demand for dollars”.

Likewise Jose Francisco Marcondes, president of the Brazil-Venezuela Federation of Chambers supports the initiative: “it is absolutely positive and adequate to organize this kind of trade which cuts us lose from the US dollar which we don't issue and from inflation”.

The comments follow reports from Brazil's main financial daily Valor Económico which estimates Brazilian exports to Argentina and Venezuela this year can be expected to drop by at least 4 billion dollars.

Alzueta said that trade in local currencies in the framework of Mercosur, launched five years ago is no greater than 5% between Brazil and Argentina. With pesos and reales and central banks acting as a clearing, the Argentine government customs controls will ease, “and stop the current situation which benefits Chinese imports”.

Argentina has suffered a retraction of domestic demand, has a recessive market and this will impact on Brazilian auto industry exports which have been hit hard by the 23% devaluation of the Peso against the US dollar last January.

But Alzueta also points out that “Brazil in two years has seen its currency fall from 1.50 reales to the US dollar to 2.40 reales. We have inflation, which deteriorates our currencies, the US no longer needs to pump money because they are attracting capital from all over the world”.

Bradesco, a Brazilian private bank estimates that Brazil sales to Argentina, its third strongest trade partner behind China and the US, will drop 3.9bn dollars.

Something similar has happened with Venezuela where Brazilian exports dropped 14.9% during January compared to a year ago, according to Marcondes, but that is not all: in that same period Venezuelan exports to Brazil ballooned 142%. He also mentioned that 2013 was the fifth best year for Brazil/Venezuela bilateral trade in manufactured goods.

Finally Marcondes said his organization favors the expansion of Mercosur, to which Venezuela was incorporated last year, and which has Bolivia, Suriname and Ecuador in the waiting list.

“It is the only possibility for the South American continent to be included in world globalization, and for the insertion of Brazil in the premier league of business, otherwise we are condemned to the periphery”, concluded Marcondes.