Brazil’s government has proposed a plan to Argentina that would use yuan to guarantee export payments in order to bypass its neighboring nation’s serious cash shortages and keep trade flowing, according to Finance Minister Fernando Haddad.
(Bloomberg) — Brazil’s government has proposed a plan to Argentina that would use yuan to guarantee export payments in order to bypass its neighboring nation’s serious cash shortages and keep trade flowing, according to Finance Minister Fernando Haddad.
President Luiz Inacio Lula da Silva’s administration has searched for ways to aid Argentina amid its intensifying economic crisis, while also attempting to ensure Brazilian exporters are paid for sales to the country’s third-largest trading partner.
“It will be a good thing for Brazilian exporters, and it will be great news if Argentina agrees,” Haddad told reporters Wednesday in South Africa, where he is attending the summit of BRICS nations. “They can have a flow of sales with 100% guarantee.”
The idea is to initially guarantee between $100 million and $140 million in trade through an exchange made by Banco do Brasil SA, which would convert yuan to reais to pay exporters, Haddad said. The government wants to test the plan before deciding whether to expand it.
Brazil is still awaiting a response from President Alberto Fernandez’s government, Haddad said.
Spiraling inflation and a record drought have battered the Argentine economy this year, pushing it to the brink of recession.
Read More: Out of Options and Money, Argentina Presses the Panic Button
Facing foreign reserve shortages, Argentina has in recent months tapped Chinese swap lines to help make loan repayments to the International Monetary Fund. Yuan use has also risen to record highs as companies struggle to find dollars to finance imports and operations.
The use of yuan, Haddad said, will ensure that there is “no risk of default” on any payments.
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