The future of Brazil-Argentina relations

. Dec 10, 2019
Alberto Fernandez Argentina new president Poster of Alberto Fernandez, the new president of Argentina. Photo: Getty

Heads of state from around Latin America will be gathered today in Buenos Aires, as Alberto Fernández takes office as the new president of Argentina. There is one notable absence, however: Brazil’s far-right President Jair Bolsonaro. Despite the close relationship the two countries have enjoyed in the past, Mr. Bolsonaro was not so fond of the guest list, which includes Venezuela’s authoritarian President Nicolás Maduro, and Cuba’s head of state Miguel Díaz-Canel.

There is also no love lost between Messrs. Bolsonaro and Fernández.

</p> <p>The former has called his counterpart a &#8220;leftist criminal,&#8221; while the latter teased the Brazilian government on social media by posting messages in support of Luiz Inácio Lula da Silva, the former Brazilian president and <a href="https://brazilian.report/power/2018/09/19/brazil-presidential-race-lula-bolsonaro/">Mr. Bolsonaro&#8217;s political nemesis</a>. At last week&#8217;s Mercosur Summit in southern Brazil, the two avoided shaking hands.</p> <p>After toying with the idea of not having a single representative in Buenos Aires, Mr. Bolsonaro ended up sending Vice President Hamilton Mourão to the ceremony—thus avoiding further deterioration of what already seems like a dysfunctional relationship.</p> <p>Even if the two countries have at times pursued different goals, Brazil and Argentina have followed similar paths in recent decades, moving from dictatorships to center-right governments to <a href="https://brazilian.report/power/2018/08/19/fall-south-america-pink-tide/">leftist leaders</a>, then back to conservative, <a href="https://brazilian.report/power/2019/10/29/legacy-mauricio-macri-leave-argentina/">pro-market leaders</a>. Now, for the first time in decades, the two countries seem to be on opposite sides, as Argentina goes back to the left, while Brazil is ruled by the far-right.&nbsp;</p> <h2>What does Brazil have to lose in a feud with Argentina?</h2> <p>The recent escalation of words between the two countries can be detrimental for both sides—which need each other desperately. Bilateral trade between South America&#8217;s biggest nations is over USD 20 billion. Brazil is Argentina&#8217;s main exporting partner—while Argentina is the biggest consumer of Brazilian manufactured goods. Only the U.S. and China have larger trading relationships with Brazil.&nbsp;</p> <p>Instead of clashing with Buenos Aires, Mr. Bolsonaro would be better advised to seek cooperation with his most important neighbors, as the health of the Brazilian economy—and his political future, by extension—also depends on that. The most recent financial crisis across the Rio de la Plata has been felt hard by the Brazilian industry.</p> <div class="flourish-embed" data-src="visualisation/1071758"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p>Since last year, the Argentine Peso has been melting, inflation has skyrocketed, and Argentinians saw their purchasing power cut to the bone. Imports fell dramatically, and a study by think tank Fundação Getulio Vargas shows that the Argentinian crisis had an effect on Brazil&#8217;s GDP. In 2018, the Brazilian economy registered 1.1-percent growth—but that rate could have been of 1.3 percent, were Argentinian exports to have stayed constant last year.</p> <p>In 2019, the hit should be even harder—with economists saying that a drop in bilateral trade between both countries will lower Brazil&#8217;s growth by 0.5 percentage points. The latest <a href="https://www.bcb.gov.br/publicacoes/focus">Central Bank estimates</a> have Brazil&#8217;s GDP growth at 1.1 percent.</p> <p>Brazil is set to record its first trade deficit with Argentina since 2003. According to the Economy Ministry, imports will outweigh exports by at least USD 260 million.</p> <div class="flourish-embed" data-src="visualisation/1075523"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <h2>Not just automobiles</h2> <p>According to data from Fundação Getulio Vargas&#8217; Brazilian Institute of Economics (Ibre), exports to Argentina began to fall in Q2 2018—but the drop grew steeper from Q3 onward. In 2019, the sales to Argentina are down 36 percent.</p> <p>And while much is said about the extent of car exports to Argentina, the truth is that the neighbor&#8217;s importance for industrial exports goes much further. The bulk of Brazilian shipments involve industrial inputs, which account for 57 percent of the total.</p> <p>&#8220;Therefore, new peaks of tension associated with the political scenario in Argentina and the possible worsening of the country&#8217;s macroeconomic projections should be closely monitored, given its impact on Brazilian economic growth,&#8221; <a href="https://blogdoibre.fgv.br/posts/crise-economica-na-argentina-tirou-02-pp-do-pib-brasileiro-em-2018-e-pode-tirar-05-pp-neste?utm_source=portal-fgv&amp;utm_medium=fgvnoticias&amp;utm_campaign=fgvnoticias-2019-09-18">say</a> economists Luana Miranda and Mayara Santiago.</p> <div class="flourish-embed" data-src="visualisation/1071769"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <div class="flourish-embed" data-src="visualisation/1071774"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <h2>Regional cooperation can&#8217;t thrive without Brazil and Argentina</h2> <p>The schism between Brazil and Argentina is also set to compromise regional cooperation issues.&nbsp;</p> <p>Mr. Fernández has said he will pull his country from the Lima Group—an association of Latin American nations critical of Venezuela’s authoritarian president Nicolás Maduro. Meanwhile, Mr. Bolsonaro has threatened to implode Mercosur if Argentina does not agree to lower common import tariffs.</p> <p>Another question hangs in the balance. Argentina&#8217;s new president has been vocal about his willingness to revise the trade deal between the European Union and Mercosur, which his VP once called &#8220;a death blow to the Argentinian industry.&#8221; But the deal is also one of Jair Bolsonaro&#8217;s biggest foreign policy achievements, and he has suggested a boycott to the deal wouldn&#8217;t go unpunished.</p> <p>In a region already <a href="https://brazilian.report/society/2019/11/23/latin-america-boom-bust-frustrations/">dealing with tension</a> and <a href="https://brazilian.report/podcast/2019/10/30/explaining-brazil-latin-america-veins-wide-open/">violent protests</a>, this escalation between Argentina and Brazil can only fuel more turmoil.

 
Lucas Berti

Lucas Berti covers international affairs—specializing Latin American politics and markets. He has been published by Opera Mundi, Revista VIP, and The Intercept Brasil, among others.

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