March 29, 2014 / 12:56 AM / 5 years ago

Brazil and Argentina ink deal to bolster dwindling trade

COSTA DO SAUIPE, Brazil (Reuters) - Brazil and Argentina signed a deal on Friday that seeks to guarantee importers will have enough U.S. dollars to pay for exports, a move to increase trade between both nations that has been hit hard by a sharp depreciation of the Argentinean peso.

Brazil's President Dilma Rousseff (L) and Argentina's President Cristina Kirchner pose for the official photo during the Summit of Heads of State of Mercosur and Associated States and the 44th Meeting of the Common Market Council at the Itamaraty Palace in Brasilia December 7, 2012. REUTERS/Ueslei Marcelino

A scarcity of greenbacks in Argentina has curbed Brazilian exports of manufactured goods like cars and home appliances, reducing the country’s trade surplus to its lowest in over a decade last year.

“This is the first step to unlock trade between both countries,” Brazilian Trade Minister Mauro Borges said after a meeting with Argentinean officials in the sidelines of the Inter-American Development Bank annual meeting.

“We will guarantee the liquidity of trade operations between both countries.”

The deal highlights the urgency Brazilian authorities have to prop up a weakening trade balance and help a local industry that has suffered from years of exchange volatility, high taxes and burdensome red tape.

In the memorandum of understanding, both countries agree to consider adopting financial instruments to lower the currency exchange risk for importers in loans of at least 90 days.

One option is for the countries to issue local-currency denominated debt protected against foreign exchange fluctuations, a sort of a exchange hedge for importers that need dollars to pay for the products.

The sharp depreciation of the Argentinean peso, which has slid nearly 19 percent against the U.S. dollar so far this year, has reduced the supply of dollars for importers.

The country’s reserves have plunged to $27.5 billion from a high of $52.7 billion in 2011, according to rating agency Moody’s, which cut the country’s rating further into junk earlier in March.

Argentina has been cut off from international capital markets since its 2002 sovereign bond default, while other potential investment has been chased away by high inflation.

In the agreement, both countries also pledged to reduce red tape at customs to ease the flow of goods.

Reporting by Alonso Soto; Editing by Bernard Orr

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