Fernando Haddad is traveling to China at the end of the month to deal with Argentina. Or should go, on behalf of Luiz Inácio Lula da Silva. It is unclear what the finance minister will do there for the Argentines. It would be handy for Brazil to be part of an international effort to prevent a collapse in the context of the Argentine collapse, with the risk of something worse than 2001.
Brazil can negotiate for help. But a rescue package for Argentina depends on countries like China or the United States. For example, in 1998, the Americans saved the FHC2 government from implosion with a wad of cash and orders to the IMF.
Sergio Massa, Argentina’s economy minister, will also be in China at the end of the month. She wants to convince the Chinese to accept even more international payments in their own currency (instead of the dollar) and to lend more money.
Argentina is broken again. Given its reserves, it will not be able to pay the IMF and sovereign debt holders in dollars by the end of the year; There are no dollars for corporations to pay off their foreign debt.
Net foreign exchange reserves are in the red or at zero. International reserves are “cash” in hard currency or equivalent. Barring what Argentina cannot sell immediately or other assets are somehow stuck or blocked, cash reserves remain, albeit a somewhat inaccurate representation. In the current case of Argentina, imprecision makes no difference.
In addition, you can always plunder the dollar savings of Argentines.
For months Brazil has at least been trying to find a way to fund the sales of Brazilian companies that export to Argentina. The companies would get theirs, they would keep selling. “Someone” would provide the credit. WHO? The Argentines would pay later. With what?
Argentina is also burning reserves (sold) to keep the peso from depreciating further in an attempt to stem even higher inflation, which stood at 108.8% a year in April and is accelerating. In practice, the government finances its deficit and domestic debt either directly or indirectly with central bank money (“prints money”). It controls imports, exacerbating the recession, and capital (dollar) outflows. It has several exchange rates, another crude from the 1950s.
The country has been locked out of world financial markets since the 2020 default and is trying to make progress with the IMF.
It is currently not even possible to summarize the magnitude of Argentina’s problem of having no currency (or usually several) and no credit for the government, given the volume of defaults and ignorance in economic policy.
Despite 70 years of madness, the country still has a higher average income than Brazil. But since 2008, for example, per capita income (GDP) has fallen (Brazil grew a meager 7%, Chile 25%, Colombia 36%). This year, GDP is likely to shrink between 3% and 4%.
To make matters worse, the country is suffering from the shame of the drought, which will cut soybean and corn crops, and thus exports, by a third. In normal production years, it would be able to push the external issue through to the presidential election in October. Now he’s on the brink of another operatic explosion, with a farright lunatic presidential candidate.
It is speculated that Brazil would try to find a way for Brics Bank to fix a bandaid on Argentina’s accounts. Maybe he can find a way to help by arranging loans for Brazilian exporters. They would be bloodletting remedies.
However, more needs to be done and Argentina would have to be ready to put things in order. Even in Brazil, it is difficult to convince the group, as the discussion about the soft fiscal framework shows. In Argentina, deep in the hell of economic madness, it’s even more complicated.