Single currency with Brazil: Argentine opposition resumes inflation initiative

Once again, Argentina looks abroad to solve domestic problems. The severe difficulties shown by the different governments in the last decade to preserve the currency’s value have been reflected in the record inflation levels that the country registers every year.

For this reason, a sector of the opposition is again raising the possibility of moving forward in creating a single currency with Brazil.

For this purpose, the Mercosur Commission met this Thursday, September 15, chaired by the national deputy of “Juntos por el Cambio,” Fernando Iglesias.

The session was also attended by the former Minister of Finance, Nicolás Dujovne, and the economist and national deputy, Martín Tetaz, who were invited to participate as speakers together with the Brazilian, Fabio Giambiagi, an official of the National Bank for Economic and Social Development (BNDES), who made his presentation through a recorded video.

When asked by Bloomberg Línea, the government’s economic team dismissed the possibility of moving forward with creating a common currency with Brazil.

WHY IS THE OPPOSITION PROMOTING THE DEBATE?

Even so, Iglesias is promoting the debate. According to him, it could bring “enormous benefits” to Argentina since “it could be an organizer of our economy”.

In this sense, he stressed that “the issue of the single currency is decisive for the region and Argentina; we have a serious monetary problem that we have been dragging for a long time”.

He added that such a project could even “avoid competitive devaluations” by any country in the region.

After his introduction, Iglesias gave the floor to Dujovne, who recalled that in 2019, when he was Minister of Economy, he even traveled to Brazil to meet with his Brazilian counterpart, Paulo Guedes, to discuss the matter.

During his presentation, the economist and former head of the Treasury portfolio welcomed the possibility of discussing the matter, even though he recalled that creating a common currency with Brazil transcends a government and “requires very long-term agreements”.

In April 2019, he recalled, the governments of these countries began talks to see the possibility of creating a single currency.

“I saw it as a great generosity on their part. The fact that Brazil proposed to talk with us showed a willingness to integrate with Argentina and regionally,” he said.

He pointed out that since 1994 Brazil has been applying macroeconomic policies that have allowed them to bring inflation to levels close to those of developed countries.

“Our currency does not enjoy the same performance,” he said.

“In 2019, we had low inflation, a single exchange market. We were not far from starting the process,” he acknowledged, even though he clarified that these were just informal talks. Then, he said, that possibility “was interrupted by the electoral process of 2019″.

For the former Minister of Economy of Argentina today, “it is difficult to think that the opportunity we had in 2019 will be repeated soon”, and among the reasons for this, he emphasized the existence of exchange controls.

“In these macroeconomic conditions, the proposal should come from the Brazilian side,” he expressed, given that he believes that, in the short term, the single currency would be more beneficial for Argentina than for Brazil.

Dujovne, however, put cold cloths to the possibility. “Let’s think about what we want a common currency for,” he asked.

He then stressed that although “Argentines are urgent to stabilize the macroeconomy and lower inflation”, it should also be remembered that “there is no magic here”.

And in this sense, he pointed out that “we need fiscal balance” and that “to have it, we need to lower public spending”.

Although Martín Tetaz was also scheduled to speak, after Giambiagi’s presentation, there was a request from the ruling party to interrupt the session and resume the issue in a new meeting.

“For us, the issue of the single currency with Brazil and its extension to Mercosur is very important. But we have a block meeting, and we have to leave. We commit ourselves to active participation in the next meeting and to propose speakers who can develop the issue”, said the national deputy and former Minister of Social Development, Daniel Arroyo.

THE SINGLE CURRENCY, A RECURRING IDEA

It is not the first time that this old possibility of creating a common currency between Argentina and Brazil has been discussed in 2022.

In May, the idea was raised again, in this case by Luiz Inácio “Lula” da Silva, former president of Brazil leading the polls for next month’s presidential elections.

Back then, in the middle of the campaign, Lula da Silva stated the need to create a common currency for Latin America. “We do not have to depend on the dollar,” he said at a party event.

The idea had even been broached days before by economists Gabriel Galípolo and Fernando Haddad, close to Lula da Silva, in an article published in Folha de S.Paulo.

However, the Argentine government’s economic team dismissed this possibility at that time.

According to several economists, the idea of a common currency with Brazil seems far away today. To implement it, Argentina would first have to correct the multiple imbalances present in its economy.

With information from Bloomberg

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