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Macri,Temer look to improve trade in midst of 24-year low

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Brazil and Argentina’s centre-right governments seek to revert the decrease in commercial relations not witnessed since the beginning of Mercosur. But there are signs that economic activity is starting to pick up

Although President Mauricio Macri praised Brazilian President Michel Temer for strengthening bilateral relations during his state visit to Brasilia this week, on the economic front that is far from the case. Last reports on foreign trade reveals that Brazil has fallen to a historic 24-year low as a destination for Argentine exports.

Three decades after the Mercosur trade bloc was formed between South America’s two largest economies, Uruguay and Paraguay, Brazil’s participation in Argentina’s commercial trade has dropped to the same amount it was at the beginning of the 90s — 20 percent. The worrying long-term trend in the commercial balance between the two nations was highlighted in the statistics published by the Argentine Chamber of Commerce and Services (CAC) last Tuesday.

Tensions over market access continue to dog the regional trade bloc. Although the Macri administration is willing to discuss the entry of Brazilian sugar into its market, its move to increase tax benefits to local auto parts manufacturers has infuriated Brazilian rivals.

In an interview with Brazilian newspapers, Macri complained about his country's $4.3 billion trade deficit with Brazil.

However, some green shoots are beginning to sprout after the latest economic reports show that trade between the two countries is picking up after two back-to-back months of growth. In January, Argentine exports to Brazil increased by 39,6 percent in a year-on-year comparison to the same month of 2016 as Brazilian exports to Argentina increased by 25.4 cent. This resulted in a 30.6 percent increase in the trade between the two countries in December.

“The creation of the common market had contributed to a considerable commercial exchange, allowing for Brazil’s participation in Argentina’s foreign trade to increase by 13 percent in 1990 and 21.5 percent in 1993. In the following 17 years, the Brazilian average was around 24.2 percent, but at the beginning of 2011 it began to deteriorate,” noted the CAC report. The peak of trade reached between the two countries was 26.5 percent in 1997.

2016

Last year, Argentine exports to Brazil totalled nine billion dollars, falling by 11 percent from the year before, while Argentine imports from Brazil increased to US$13.7 billion, representing a four percent hike from 2015. This has led the trade deficit to jump to US$4.64 billion, increasing to US$1.64 billion in comparison to last year and close at its historic high of five billion dollars in 2011.

The largest component of the exchange of goods between both countries is industrial goods, which represent 63 percent of its trade, and the primary component of that trade is the import and export of vehicles and auto parts. For Argentina, it represents 37 percent of its exports, while it represents 48 of Brazil’s exports to Argentina. The decrease in Brazil’s participation in Argentina’s economy has taken place at the same time that China has consolidated itself as the country’s second-largest trade partner, just behind Brazil, representing 13.5 percent of Argentina’s foreign trade.

Predictions of growth

In spite of the historic trade lows, many economists, financial consultancies and international organisations predict that trade will start to get back on track in 2017.

“The perspectives for 2017 are favourable for Argentine exports to Brazil after in 2016 the exchange reached historic lows in the last 10 years,” stated an Abeceb financial consultancy report, led by economist Dante Sica. This was in part impacted by the 2008 financial market crisis that had an impact on global commodity prices, which led to substantially lower growth globally but especially in emerging markets. “After so much time, there is a window of opportunities, as never seen before with Brazil,” said Sica in an interview with Radio Mitre last Tuesday. He believed now that centre-right governments with similar economic policies were in power, they would be able to grow in the same direction together. “Both have flexible exchange rates, anti-inflationary monetary policies. In a greater or lesser measure we are going to have improved budgets and they are taking a serious look at the necessity of getting out of the trade bloc a bit,” he said.

Econviews financial consultancy director Miguel Kiguel was less optimistic. “It won’t be a boom, but there will be a little bit of growth. Brazil is pushing very little,” he said.

Finance Minister Nicolás Dujovne also noted the improving bilateral conditions this year between the two countries, pointing out how exports to Brazil — especially wheat exports — were starting to increase. He admitted though that they need to negotiate a new trade accord with Brazil as the trade deficit Argentina has with their northern neighbour is still large. “It’s a problem that has to do with the automobile industry sector,” the Finance minister said. According to the latest IMF statistics, Brazil is expected to grow by .02 percent in 2017 and 1.5 percent in 2018.

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