Lula da Silva and Alberto Fernández took advantage of the official visit of the President of Brazil to Argentina and announced the beginning of studies for the creation of a single currency in the South American space, under the name “sur”. The eventual common currency would serve exclusively for commercial and financial transactions between the countries, without eliminating the Brazilian real or the Argentine peso. Still, it would become the second largest bloc of its kind in the world, just behind the Eurozone.
“We intend to break down the barriers in our exchanges, simplify and modernize the rules and encourage the use of local currencies. We have also decided to move forward in discussions on a common South American currency that can are used for both financial and commercial flows, reducing operating costs and our external vulnerability,” Lula, who was sworn in as head of state on January 1, and Fernández, who has led the Argentine government for just over three years, wrote in an article in the Buenos Aires newspaper Perfil.
“We cannot depend on outside suppliers to access essential inputs and commodities for the well-being of our people,” the politicians, old friends, and both of the centre-left declared.
However, Fernández told Brazilian channel Bandnews that the ball is more in Lula’s court than him. “We talked to Lula about the single currency and I saw him with great enthusiasm, but I had to be honest and say it’s more his decision than mine. I’ve already accepted the decision.”
The study comes in a context of severe economic crisis on the Argentinian side, with inflation approaching 100%, and strong polarization on the Brazilian side, after Lula won the October 30 elections with less than 51% of the vote and was threatened with a coup d’état on the 8th, in an invasion of the headquarters of the three powers, in Brasilia, carried out by supporters of the defeated at the polls, Jair Bolsonaro.
That is why the two leaders in the joint article, after talking about the need for reindustrialization in Brazil and Argentina and defending that greater integration of the production chains in both countries can help to mitigate external shocks, such as those during the covid- pandemic, -19, emphasized commitment “to democracy” and condemned “all forces of anti-democratic extremism and political violence”.
The ministers of the area also discussed the issue. “There will be a study on trade integration mechanisms, but I don’t want to raise false expectations: it is the first step of a long road that Latin America will have to travel,” Sergio Massa, Argentina’s economy minister told the newspaper. Financial Times.
Fernando Haddad, Lula’s finance minister, warned, already on Argentine soil, of “the difficulties” in creating “sur”. “The problem is precisely the currency. We are racking our brains to find a solution, something common, something with which we can boost trade, because Argentina is one of the countries that buy industrial goods from Brazil and our exports to Argentina are falling , everything is about overcoming their difficulty, we think of different possibilities”.
Leonardo Trevisan, professor of economics and international relations at the Escola Superior de Propaganda e Marketing, tells DN/Dinheiro Vivo that the single currency in Mercosur, the organization that includes Brazil, Argentina, Uruguay and Paraguay as full members, has been “a historic desire, since the introduction of the euro, in Europe”.
“And it’s still because the euro was much more of a solution than a problem, after all, it was what brought about the operability of the EU,” he recalled. “In the 2008 crisis, South America felt the weight of the dollar a lot and now in 2023, the transaction costs, being in dollars, have a very high financial weight. Hence the idea of the single currency as a solution. However, good, but there is always a but for every advantage”.
“If Europe is already unequal, what about South America, with countries like Brazil, with 210 million inhabitants, and Uruguay, with three, on the other hand, Brazil has a reserve of $350 million, Argentina says to spend one to have.” of seven, but there are those who say it doesn’t reach half of that, these are very deep differences between the two countries that would be to the “sur” what Germany and France are to the euro,” says Trevisan.
Other economists used social networks to dismiss the idea in a concerned but also good-humoured tone. Alexandre Schwartsman, former director of international affairs at the Central Bank, ironically called the initiative “sur real”.
In another publication, he shared an interview with the newspaper Folha de S. Paulo, from June 2019, where he already criticized the plan of former economy minister Paulo Guedes, Haddad’s predecessor, to create a currency with the neighboring country. “In 2019 I thought Paulo Guedes’ idea was useless. Today I am absolutely sure it is useless”.
Luiz Carlos Mendonça de Barros, former president of the National Bank for Economic and Social Development and former Minister of Communications in the government of Fernando Henrique Cardoso (PSDB), called the creation of a common currency with Argentina, “a country with almost 100% inflation”.
Economist Nelson Marconi, Ciro Gomes government program coordinator in the 2018 and 2022 election races and visiting researcher at Harvard University, warned of the need to create an exchange rate to use reserves in “sur” when buying or selling from other countries. Latin America would thus have “exactly the same problem as the euro”, with “loss of autonomy for macroeconomic policy”.
Paulo Gitz, XP International’s director of Global Actions, also compared the “sur” to the euro: “It’s like Europe, except everyone is Greece…” he joked.
Lula arrived in Argentina on the night of Sunday, January 22, for his first trip as president of his third term in office. He had a bilateral meeting with Fernández on Monday, January 23 and on Tuesday, January 24, he will participate in Buenos Aires at the 7th Summit of CELAC, the Community of Latin American and Caribbean States. On Wednesday, January 25, he will travel to Montevideo to meet Luis Lacalle Pou, President of Uruguay.
Source: DN
