Argentina’s Financial Crisis Affects Brazil

By Lise Alves, Contributing Reporter

SÃO PAULO, BRAZIL – Brazilian businessmen are closely monitoring the financial crisis in Argentina, concerned with the effects that the crisis may have on Brazilian production and exports. Their concern is warranted: during the first five months of 2014 Brazilian exports to Argentina have declined by 19.8 percent in relation to the same period in 2013 dropping from US$524 million in 2013 to US$385 million in 2014.

“Even with the decline, the volume of trade is still very significant,” says Alberto Alzueta, president of São Paulo’s Argentine-Brazilian Chamber of Commerce. “Brazil is one of Argentina’s largest trading partner, and vice-versa.”

Argentina is the destination of more than eight percent of all of Brazil’s exports; the country is Brazil’s third largest trade partner behind only the U.S. and China. According to Alzueta, however, the trade flow between the two countries and likely to decrease even further in 2014.

One of the most affected sectors in Brazil has been the automotive industry. Argentina has traditionally been responsible for nearly 25 percent of all of Brazil’s automobile exports. This year, however, exports have sharply decreased, and Brazilian automakers are feeling the pressure.

The latest forecast by ANFAVEA (Brazil’s National Association of Vehicle Manufacturers) calls for a reduction of exports by 29.1 percent this year in relation to 2013. According to the ANFAVEA’s president, Luiz Moan, exports totaled a disappointing US$854.8 million in June, down by 23.7 percent in comparison to May and 39.4 percent in comparison to June of 2013. The association says the reduction in both the volume of units exported and value are greatly due to the reduction of exports to Argentina.

With the decrease in exports to Argentina along with a weak first semester of domestic sales, Brazilian automakers have decreased production. ANFAVEA’s results show that production of automobiles, trucks and buses declined by 23.3 percent in June comparison to May and plummeted by 33.3 percent in relation to June of 2013.

Brazilian businessmen from many economic segments now fear that Argentina’s financial troubles may negatively effect heavily exported-oriented industries, leading to reduced production and increased unemployment, back home. For many, like Alzueta, Brazil should step up and help its neighbor.

“We have to help. We have to tell the holdouts (creditors who refuse to accept renegotiation process) that they must negotiate or the region will suffer. Investors start losing confidence in Argentina, and this lack of confidence may affect investor confidence in Brazil,” says the executive.

Alzueta goes even further, “We want Brazilian automakers and autoparts manufacturers to speak out and put some pressure on these holdouts, so that a realistic negotiation plan may be worked out.” Alzueta says a solution to the crisis will not come in the short-term, but notes that uncertainties will certainly make the remainder of 2014 and all of 2015 difficult years. “It is easier for me to forecast what the scenario will look like in 2020 than what it will be like next year,” he concludes.