BRASÍLIA - Argentina is Brazil's third largest trade partner, but the neighboring country is currently facing capital flight, high inflation and a major slowdown of its industry. If the state of economy deteriorates further, some sectors, such as the automotive, textile and food industry, will suffer the consequences -- a situation Dilma Rousseff’s government wants to avoid at all costs.

Folha De S. Paulo has uncovered a decision -- not publicly divulged -- to reduce the Brazilian surplus from R$ 5.8 billion ($2.9 billion) in 2011 to R$ 4 billion ($2 billion). The Brazilian government has accepted the $1 billion reduction in bilateral trade surplus with Argentina to help its troubled neighbor, whose economic woes could potentially spread across the border.

A spokesperson for the Ministry of Development, Industry and Foreign Trade denies the report, but the offer has been presented to the Argentinean side and includes establishing extra-official quotas for Brazilian product exports.

As of today, several items sold to Argentina have trade tarrifs. Non-official quotas would free products from this obstacle, even restricting sales.

In Buenos Aires, the problems faced by President Cristina Kirchner are eroding her popularity. While in Brasília, the whistle had already been blown on secret messages sent by Brazilian diplomats, which Folha managed to obtain. In a cable sent last January, the Brazilian embassy in Buenos Aires warns that capital flight will continue until the end of 2012.

Dilma Rousseff is aware that the rise in currency rates in Argentina has resulted in a loss of competitivity, and diminished reserves.

Change of tone

Brazil's decision to reduce its surplus represents a new position in dealing with the Argentinean crisis. At the beginning of the year, ministries were considering retaliating against its neighbor. The change of tone reveals how worried the country is about its trade partner.

Although both economies are closely tied to each other, the Ministry of the Treasury does not think that a currency crisis would have dramatic consequences on Brazil. Tristán Rodríguez, economist at the Center for the Opening and Development of Latin America (CADAL), says the slowdown in Brazilian industry affects Argentina more than the other way around.  

Read the original article in Portuguese

Photo - seretide