Integration: Brazil and Argentina Create US$ 1.8 Bi Credit Line

Brazil and Argentina have just signed an agreement to swap domestic currencies for the equivalent of a total USS$ 1.8 billion, which could be used to increase international reserves. The accord was described as an important effort towards "financial integration" in the framework of Mercosur.

The agreement was stamped by Brazilian Finance Minister Guido Mantega and his Argentine counterpart Amado Boudou, who flew to Brazilian capital Brasí­lia to hold talks ahead of the G20 September meeting in Pittsburgh. Both countries are members of the G20.

"This is another significant step towards financial integration of the two countries, following on the path of strong trade and political integration," said Finance Minister Mantega.

The agreement now has to be validated by the Central Bank of both countries and, once formalized Argentina will be able to have access to 3.5 billion reais while Brazil will be able to count on 7 billion Argentine pesos.

"What we are doing is refining an integration process which, in addition, is creating a new connectivity net for both financial systems," said Boudou during a press conference shared with Mantega.

The agreement is similar to the one signed last year between the Brazilian Central Bank and the US Federal Reserve which involved US$ 30 billion, added Mantega.

"This is like an overdraft agreement, which can be used or not, it's there available. If used, interests will have to be paid," said Mantega who indicated that both principal and rates will be honored in local currencies.

Boudou said that these kinds of agreements are important for "advancing local commerce; a steady step towards improving credit opportunities through local financial systems."

He also pointed out that the agreement reached is significant for the reinforcement of Argentina's international reserves, which currently stand at US$ 44 billion. "It's a financial instrument that will help, when the global financial market is in crisis."

Mantega said that the agreement was important "in the midst of a situation which has deteriorated after the economic crisis."

According to the Brazilian press, Boudou and Mantega analyzed the evolution of international commerce, the complaints launched by Brazilian industrialists regarding bilateral trade and the stances to be taken at the next G-20 meeting.

Mantega rounded up the meeting saying that "the reserves give stability to both countries" and emphasized the bilateral relationship between the two South American nations is "harmonious."

Mercopress