China and Brazil trade with Argentina / China e Brasil na Argentina

Argentine import restrictions have ripple effects in Brazil

Jul, 12, 2022 Posted by Gabriel Malheiros

Week 202023

The import restrictions imposed by the government of Argentina, a measure set to contain the devaluation of the local currency compared to the dollar, will have ripple effects in Brazil, said Argentine economist Alejo Czerwonko, head of investments at UBS bank for Latin America. Although a large-scale contagion remains unlikely due to the neighboring country’s lost share in the Brazilian foreign trade, some industries, including footwear, are already feeling the blow.

“The political and economic crises in Argentina are feeding each other, and there is evidence that the situation will worsen before stabilizing,” commented him. “The Argentine government doesn’t seem willing to allow the exchange rate to reflect the country’s economic reality. It is expected, thus, that import restrictions will increase, and countries like Brazil will be affected.”

A change in the Argentine Ministry of Economy last week exacerbated the country’s crisis and encouraged another significant devaluation round on the Argentine peso in the parallel market, while the official exchange rate remains controlled by the government – the parallel dollar was quoted at 263 pesos and the official, 133 pesos on July 11. Despite this, in a statement issued on the same day, the 11th, the new minister, Silvina Batakis, stated that the country’s currency rate is “balanced.” She said the parallel market moves about 3 million pesos daily while the official market moves 1 billion.

However, the measure announced by the Argentine Central Bank at the end of June, even before the situation worsened after the change in the Ministry of Economy provoked by vice-president Cristina Kirchner, altered the exchange rate conditions in the neighboring country in terms of paying for imports. Although economists agree that Brazil’s macroeconomic contagion risk is low, leaders from industries such as automotive and footwear cannot say the same.

“Argentina is our second main destination in terms of shipments,” says Priscila Linck, economist and Market Intelligence coordinator at the Brazilian Footwear Industry Association (Abicalçados). “This restriction surprised the sector at a time of expressive shipment growth. In the first half of the year, our exports to the region grew 88% in value and 61% in volume, the highest volume recorded since 1997.”

See below the track record of Brazilian footwear exports from January 2021 to May 2022. The data is from Dataliner.

Brazilian footwear exports to Argentina | Jan 2021 – May 2022 | TEU

Source: DataLiner (click here to request a demo)

According to Priscila, since the Argentine Central Bank announced the restriction promptly put into force on June 27, Brazilian shoe exporters saw their products stop at Argentina customs without entering the country. She explains that, given the restriction of payments, which aims to contain exchange devaluation, the situation has forced Brazilian companies to finance buyers.

“That’s basically it. Brazilian companies need to ship the goods and bear the cost of production and shipment, with a promise that importers will make payment after 180 days when they are expected to regain access to the exchange market if the measure is not extended,” comments the economist from Abicalçados. “Companies that have long-term relations with Argentine importers tend to maintain the operation [in the Argentine market], but others that are unable to finance Argentine partners tend to suspend the operation in the country,” says Priscila noting that there are reports of canceled orders.

“Although it is not yet reflected in statistics, many small and micro enterprises are feeling unable to function as financiers of Argentine importers,” he adds.

Despite this, according to government officials, no complaints or requests were forwarded for Brasília asking for cooperation with Casa Rosada to relax restrictions on the import of Brazilian products by Argentina. Contrary to commercial problems in the past, when the private sector’s appeals were almost immediate, business people have been much more restrained this time. In the authorities’ assessment, this is a reflection of the loss of importance of the Argentine market for a large part of the industry in Brazil.

Source: Valor Econômico

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