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Brazil proposes yuan guarantees for exports to Argentina, finance minister says

Published 08/23/2023, 12:41 PM
Updated 08/23/2023, 05:01 PM
© Reuters. FILE PHOTO: Brazil's Finance Minister Fernando Haddad looks on during a meeting between Brazil’s President Luiz Inacio Lula da Silva and Argentina's President Alberto Fernandez at the Alvorada Palace in Brasilia, Brazil, May 2, 2023. REUTERS/Uesl
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JOHANNESBURG (Reuters) -Brazil has submitted a proposal to Argentina aimed at securing Chinese yuan guarantees for Brazilian exports to the neighboring country in an initiative involving state-run lender Banco do Brasil, Finance Minister Fernando Haddad said on Wednesday.

Banco do Brasil under the proposal would oversee the conversion of yuan back into Brazilian reais, based on provided guarantees, Haddad told a press conference in Johannesburg on the sidelines of the BRICS nation summit.

Brazil's third-largest trading partner, Argentina is suffering an economic crisis marked by soaring inflation and dwindling central bank reserves. Chinese yuan guarantees would provide security to Brazilian companies concerning their sales receipts amid Argentina's dollar shortage.

Under the plan, Brazil's government would create a new credit line of 700 million reais ($144 million) to provide financing for Argentine importers who engage with Brazilian exporters within the established framework of the Financing Exports Program (Proex), instituted in 1991, said a government source with direct knowledge of the matter.

Requesting anonymity due to ongoing negotiations, the source said the funding would not need any Treasury contribution and would stand as an autonomous resource ready to be used.

The proposed approach involves Argentina providing yuan-denominated guarantees that match the precise value of the credit line, followed by the transfer of these funds to Brazil via a Banco do Brasil-managed exchange operation.

Proex would pay the Brazilian exporter and, should an Argentine importer default on obligations within the program, the guarantee in Brazilian reais, guarded by Banco do Brasil, would be promptly redirected to the National Treasury by the bank.

Brazil's Treasury looks favorably on the idea, Haddad said, because of the absence of default risk, and Brazil now awaits Argentina's response.

The move, if approved by Argentina, would be positive for Brazilian companies because "they can have some sales flow for their products with 100% collateral," Haddad added.

Speaking a day after Brazil's Congress approved new fiscal rules, Haddad said his country must work to improve the macro-economic environment as quickly as possible, adding the government must now set the pace to balance the budget.

© Reuters. FILE PHOTO: Brazil's Finance Minister Fernando Haddad looks on during a meeting between Brazil’s President Luiz Inacio Lula da Silva and Argentina's President Alberto Fernandez at the Alvorada Palace in Brasilia, Brazil, May 2, 2023. REUTERS/Ueslei Marcelino/File Photo

Haddad said the new fiscal rules, measures to increase revenues and tax changes that still need Senate approval, should bring a higher economic growth rate in Brazil.

($1 = 4.8529 reais)

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