Luiz Inácio Lula da Silva and Cristina Fernandez de Kirchner, presidents of Brazil and Argentina, respectively, signed this Monday, September 8, an agreement which officially launches the use of their countries currencies – the Brazilian real and the Argentinean peso – for bilateral trade instead of the US dollar.
During the meeting held in Brazilian capital Brasília the two presidents also signed an intention protocol for the construction of a bi-national Garabi hydroelectric dam across the river Uruguay which acts as a natural border between the neighboring countries.
"We're giving a crucial step for a future regional monetary integration," said Lula during the official reception. "We are going to abolish the dollar as a currency in our trade," he added.
The Brazilian leader pointed out that he wanted Brazil and Argentina's trade balance to be more balanced. Argentina had a US$ 2.7 billion trade deficit with its larger neighbor Brazil in the first half of the year.
"The trade balance should be a two-way street," he said. "There has to be certain balance: one can have a small difference, one year a trade deficit and the next a surplus."
"It is not in Brazil's interest that there be a big trade surplus in Brazil's favor." Bilateral trade is expected to reach US$ 30 billion by the end of the year.
Brazil's Central Bank said in a release that it had signed with the Argentine Central Bank an accord which establishes the rules for the Local Currencies Payments System, SML between the senior members of Mercosur.
Brazilian Finance minister Guido Mantega later said the agreement becomes effective on an experimental basis, as of next October. He added the system could be extended to include other members of Mercosur, Paraguay, Uruguay and eventually Venezuela when it finalizes the incorporation process.
Under the SML system Argentine and Brazilian importers and exporters can use their own currencies for trade operations.
"The intensification of the real-peso market, the reduction of hurdles in commercial transactions between both countries and access for small and medium exporters are the main objectives of the initiative," stated the Brazilian central bank.
SML is planned to be used for trade operations with a time limit of 360 days. Related services such as freight and insurance can also be paid with any of the two currencies.
Lula and Kirchner also signed a protocol to enable Brazil's Investment and Foreign Trade bank to finance bi-national integration public works.
The signing of the agreements also marked the end of the three day visit by Kirchner to Brazil, which included a place of honor for President Cristina Kirchner on Sunday during the military parade celebrating Brazil's Independence Day.