Brazil and Argentina Ban US Dollar in Their Trade Transactions

Mercosur’s leading members Argentina and Brazil have agreed on a pilot Project to eliminate the US dollar in trade transactions between both countries with the purpose of reducing costs and bureaucracy for exports and imports.

"It’s a decision which will strengthen Mercosur," said Argentina’s Finance Minister Felisa Miceli.

Currently when an Argentine company sells to Brazil it must convert pesos into US dollars and then into Brazilian reais, and vice versa for Brazilian exports.

The agreement was reached last Friday, September 1st, during the Mercosur Economy Ministers summit in Rio do Janeiro with the participation of delegations from the five full member countries and associate members.

The project should begin to be implemented in 2008; however countries that adhere to the Argentine/Brazilian initiative are expected to make the official announcement during the Mercosur presidential summit next December 15.

But much can happen from now until December 15 basically because Mercosur junior members, Uruguay and Paraguay, are not satisfied with the treatment received – and unfulfilled promises – from their senior partners.

The meeting ended with a release emphasizing that discussions centered on "the necessary improvements for a greater integration of the regional economies and joint actions in favor of a sustainable development of the respective economies."

In other words, further commitments to help financially Uruguay and Paraguay since both countries, particularly the Uruguayan Tabare Vazquez administration are involved in negotiations for bilateral trade agreements with the United States and other third parties, outside of Mercosur.

Supposedly under article 32 of the Mercosur charter bilateral free trade agreements with third parties are conditioned to support from all block members but Uruguay is challenging the stand.

Furthermore the Paraguayan Industrial Union announced last week that in the coming days it will be sending a delegation to Montevideo to coordinate efforts with Uruguay in trade talks with the United States given the growing obstacles "imposed by Argentina and Brazil in Mercosur".

"We want to see if it’s possible for Paraguay and Uruguay, the two weakest members of Mercosur to get involved in joint trade negotiations with the United States," said Gustavo Volpe head of the Paraguayan industry association.

Mercosur created over a year ago a Structural Convergence Fund, Focem, with US$ 100 million provided by Argentina and Brazil to support Paraguay and Uruguay, but at the Rio meeting projects to be benefited were not discussed much less defined.

The Rio release also mentions the need to keep advancing in mechanisms to coordinate "macro economic policies" of the block, plus the possibility of creating a development bank financed with aid and credits from multilateral organizations with the specific objective of promoting infrastructure works.

The block however managed full agreement among all members to support a common Mercosur position regarding reforms to the IMF which will be considered in the coming annual assembly to be held in Singapore.

Mercosur’s five full members also agreed to propose IMF the creation of "automatic withdrawal contingency credit lines" for emergency situations and specifically "with no strings attached".

Next September 19/20 in Singapore IMF will be voting on reforms to restructure its capital composition and member countries participation. In a first stage the reforms would open a larger participation from China, Mexico, South Korea and Turkey.

However the heart of the matter "is how the general restructure is achieved looking ahead with the determination of having all countries participate," said Argentine Economy Minister Felisa Miceli.

"Our position is that the current participation of developing countries must be respected, in detriment of other groups of countries," she insisted.

Although the IMF board agreed to give a slight vote increase to China, South Korea, Mexico and Turkey, pending the assembly’s consent, the decision did not count with the approval from Argentina, Brazil and India.

According to the new distribution of IMF voting rights, Argentina will actually experience a reduction.

Mercopress

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