Brazil Will Finance Exports to Argentina in an Attempt to Revive Its Neighbor’s Exports. The Question Is: Will They Pay? As We Have a History of Loans That Were Not Repaid, Mozambique Is an Example.

To Better Explain This Subject, Know That Argentina Tried To Sell The Idea Of A Single Currency To The Financial Times, But This Is All Out Of Despair. However, There Is Nothing Close To This In Discussions, Except For The Creation Of A Working Group That Is Being Thought Of For A Future Currency, However This Will Only Be Worth For Commercial Exchanges. 

At First, With The Crisis In Argentina, The Pre-Mercosur Period Returned In Commercial Relations With Brazil. This Space Was Occupied By China For Offering Credit And Swap From One Central Bank To Another. In This Way, If You Do Not Know What Swap Is, Know That It Is A Currency Exchange When One Side Cannot Control Certain Risks And Operations Due To Lack Of Convertible Currencies. 

Thus, The First Step To Resume Trade With Argentina Is Directed To Eximbank, Which Is A Bank For Financing Foreign Trade. However, There Are Some Difficulties With The Central Bank That Do Not Want To Take This Risk. Moreover, The Ministry Of Finance Offered The Treasury To Provide Guarantees, But It Is Worth Remembering That There Should Be Legal Limitations So That The Treasury Can Act As A Provider For The Central Bank While Also Being A Guarantor. 

In Negotiations, Argentina Wanted Access To A Fixed Line Of Reais To Convert Into Dollars. Therefore, It Was Decided That The Credit Would Be Exclusively For Importing Products And Even Services From Brazil. However, This Option Will Be Guaranteed By The FGE (Export Guarantee Fund), Which Is The Best Path According To The Banks.

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All Because The Export Guarantee Fund Has Sovereign Risk In Brazil That Is A Bit Low And Does Not Affect Brazilian Limits. Thus, According To The Credit Profiles Of A Bank, This Can Define Loan Limits. In Any Case, Any Bank, Especially Private Banks, Can Move Forward To Finance Trade With Argentina. By The Way, Payment Should Be Made Directly To The Brazilian Exporter. 

To Help You Understand Better, We Prepared An Example: Let’s Suppose That Fiat Is Going To Export To Argentina, Requests Financing In 180 Days, And The Brazilian Bank Should Pay Upfront In Brazilian Currency (Real). Therefore, It Is Worth Remembering The Guarantees That Argentina Has As Reserves Of US $7 Billion In Cash And Brazil’s Exports Are US $13 Billion Per Year.

But As Everything Has A Small Risk, These Operations Could Not Be Different As There Are Two Risks That Must Be Managed: The Risk Of The Argentine Importer And The Risk Of Argentina Itself, However, Argentina Does Not Have Enough Dollars To Make The Transfer. Considering This, The Big Challenge May Be To Manage The Dual Risk Of The Importer And Argentina. 

In Any Case, The Best Path According To The FGE Is To Exchange The Dual Risk Of Negligence For The Risk Of The Treasury, Which Is Essentially The Same Sovereign Risk Of Brazil (Very Low). In Conclusion, According To Brazil, The Credit Limit Will Depend Largely On The Quality Of Its Portfolio, Thus The Credit Limits Will Not Be Affected.