MercoPress. South Atlantic News Agency

Brazil/Argentina agree on deal to promote bilateral trade by guaranteeing 'dollar liquidity'

Argentine minister Kicillof and Trade minister Borges signed the agreement

Brazil and Argentina signed a deal over the weekend that seeks to guarantee importers will have enough U.S. dollars to pay for exports, a move to increase trade between both nations that has been hit hard by a sharp depreciation of the Argentine peso.

 A scarcity of greenbacks in Argentina has curbed Brazilian exports of manufactured goods like cars and home appliances, reducing the country's trade surplus to its lowest in over a decade last year. Bilateral trade last year reached 39 billion dollars.

“This is the first step to unlock trade between both countries,” Brazilian Trade Minister Mauro Borges said after a meeting with Argentine officials in the sidelines of the Inter-American Development Bank annual meeting which took place in Brazil.

“We will guarantee the liquidity of trade operations between both countries”, said Borges adding that the target is to promote bilateral trade through the reduction of uncertainty and the increase of trust among operators.

The deal highlights the urgency Brazilian authorities have to prop up a weakening trade balance and help a local industry that has suffered from years of exchange volatility, high taxes and burdensome red tape.

In the memorandum of understanding, both countries agree to consider adopting financial instruments to lower the currency exchange risk for importers in loans of at least 90 days.

One option is for the countries to issue local-currency denominated debt protected against foreign exchange fluctuations, a sort of a exchange hedge for importers that need dollars to pay for the products.

The sharp depreciation of the Argentine peso, which has slid over 19% against the U.S. dollar so far this year, has reduced the supply of dollars for importers.

The country's reserves have plunged to 27.5 billion from a high of 52.7 billion in 2011, according to rating agency Moody's, which cut the country's rating further into junk earlier in March.

In the agreement, both countries also pledged to reduce red tape at customs to ease the flow of goods. The Argentine side in the negotiations was represented by Economy minister Axel Kicillof.