Visiting Buenos Aires is a tradition for Brazilian leaders dating back to 1900, when then-President Campos Salles visited Julio Argentino Roca. On Thursday, Jair Bolsonaro became the 13th Brazilian president to pay a visit to our neighbors. The visit was marked by Mr. Bolsonaro’s breaches of protocol and unapologetic bravado.

International leaders usually avoid endorsing candidates in other countries’ elections—especially tight races—for one simple reason: they will have to deal with whoever wins. The Brazil-Argentina relationship is key to both countries, as our neighbors are Brazil’s third-biggest trading partners (trailing behind only China and the U.S.), and one of the main destinations of manufactured goods produced in Brazilian factories.

</span></p> <p><span style="font-weight: 400;">So conventional wisdom would suggest that a Brazilian president should be in good terms with whoever occupies the Casa Rosada. But, if Mr. Bolsonaro has shown us anything in his five months as president, it is that conventional wisdom doesn&#8217;t mean much to him. He has openly said he wants incumbent Mauricio Macri to win the <a href="https://brazilian.report/power/2019/04/26/brazil-macri-kirchner-argentina-election/">October presidential race</a>, telling Argentine newspaper </span><i><span style="font-weight: 400;">La Nación</span></i><span style="font-weight: 400;"> that a return of Peronism would be a &#8220;major setback for both Argentina and South America.&#8221;</span></p> <p><span style="font-weight: 400;">Then, Mr. Bolsonaro went further, talking to a crowd of business people from both countries about a common currency to be shared between Brazil and Argentina, which already has a name: the Peso Real. Government sources say the matter has been discussed over the past couple of months—but remains in its early stages.</span></p> <p><span style="font-weight: 400;">The reaction to it has been ferocious, with economists from both countries—and different philosophies—calling it &#8220;absurd&#8221; and delusional—or even flat-out &#8220;stupid.&#8221; When criticized over the plan potentially devaluing Brazil&#8217;s currency, Jair Bolsonaro resorted to his favorite analogy: &#8220;It&#8217;s like a marriage, you win on one hand, and you lose on the other.&#8221;</span></p> <p><span style="font-weight: 400;">We explain why the Peso Real is impossible right now—and is unlikely ever to become a reality.</span></p> <h2>Where does the idea come from in the first place?</h2> <p><span style="font-weight: 400;">The idea of a common currency in the region has been speculated for decades. On January 31, 1998, then-Argentine President Carlos Menem introduced it as </span><a href="https://brazilian.report/money/2018/04/16/mercosur-free-trade-problems/"><span style="font-weight: 400;">a goal to be pursued by Mercosur</span></a><span style="font-weight: 400;">, the South American common market including Brazil, Argentina, Uruguay, and Paraguay (Venezuela has been suspended as member—and Bolivia could join the group).</span></p> <p><span style="font-weight: 400;">Economy Minister Paulo Guedes himself has defended a common currency for South American countries for decades. In 2008, he wrote an op-ed on </span><a href="https://epoca.globo.com/paulo-guedes-defende-moeda-unica-desde-2008-23723698"><i><span style="font-weight: 400;">Época</span></i></a><span style="font-weight: 400;"> magazine. This is what what he wrote back then:</span></p> <blockquote><p><i><span style="font-weight: 400;">“In leading their economies towards a successful integration into the new order, socialist or social-democratic governments in Latin American have left a lot to be desired. How do we liberate them from their mistaken worldview, their obsolete institutions, without demanding they abandon their legitimate dreams of improving the quality of life of the masses? How do we break their ineptness with modernizing reforms? With the bigger dream of Latin American integration, in which the catalyst is the goal of a single currency—the Peso Real.</span></i></p> <p><i><span style="font-weight: 400;">The intention to create a strong regional currency over the next decade would kick off a cycle of reforms to ensure the convergence of tax, labor, and pension policies, and so on. This positive agenda created by the search for a continental currency would break the inertia that stands in the way of our political leaders and threatens the growth dynamic in Latin America.”</span></i></p></blockquote> <h2>Why is a Brazil-Argentina common currency impossible right now?</h2> <p><span style="font-weight: 400;">More than anything, the idea of the &#8216;Peso Real&#8217; sounds like a populist campaign slogan, rather than an actual project of monetary integration between South America’s top two economies.</span></p> <p><span style="font-weight: 400;">Polls show Mr. Macri trailing behind the Peronist ticket—which includes former President Cristina Kirchner as the VP candidate. If the polls are right—and that&#8217;s a big if, as many are skewed by political interests—Ms. Kirchner and Alberto Fernández (her former chief of staff and presidential candidate) could pull off a </span><a href="https://jacobinmag.com/2019/05/cristina-kirchner-alberto-fernandez-peronism-argentina"><span style="font-weight: 400;">first-round win</span></a><span style="font-weight: 400;">.</span></p> <p><span style="font-weight: 400;">The idea of the Peso Real came with a caveat—it would only be discussed </span><i><span style="font-weight: 400;">after</span></i><span style="font-weight: 400;"> the election, suggesting that only a win for Mr. Macri would allow the project to move forward. In a country where the currency has lost 118 percent of value in 2018, the idea of a stronger currency shared with Brazil could sound promising to some voters. As one commenter joked on Twitter: &#8220;In South American politics, it is not enough to lie in your own campaign—you have to lie on other people&#8217;s, too.&#8221;</span></p> <hr /> <p><img class="alignnone size-full wp-image-18786" src="https://brazilian.report/wp-content/uploads/2019/06/export-BRCda-1.png" alt="brazil argentina currency dollar" width="1200" height="800" srcset="https://brazilian.report/wp-content/uploads/2019/06/export-BRCda-1.png 1200w, https://brazilian.report/wp-content/uploads/2019/06/export-BRCda-1-300x200.png 300w, https://brazilian.report/wp-content/uploads/2019/06/export-BRCda-1-768x512.png 768w, https://brazilian.report/wp-content/uploads/2019/06/export-BRCda-1-1024x683.png 1024w, https://brazilian.report/wp-content/uploads/2019/06/export-BRCda-1-610x407.png 610w" sizes="(max-width: 1200px) 100vw, 1200px" /></p> <hr /> <p><img class="alignnone size-full wp-image-16389" src="https://brazilian.report/wp-content/uploads/2019/04/inflation.png" alt="inflation in brazil vs. argentina" width="1200" height="800" srcset="https://brazilian.report/wp-content/uploads/2019/04/inflation.png 1200w, https://brazilian.report/wp-content/uploads/2019/04/inflation-300x200.png 300w, https://brazilian.report/wp-content/uploads/2019/04/inflation-768x512.png 768w, https://brazilian.report/wp-content/uploads/2019/04/inflation-1024x683.png 1024w, https://brazilian.report/wp-content/uploads/2019/04/inflation-610x407.png 610w" sizes="(max-width: 1200px) 100vw, 1200px" /></p> <hr /> <p><span style="font-weight: 400;">Moreover, the Brazilian Central Bank declared no studies of a common currency have been carried out so far. Argentine analyst Gustavo Segré called the Peso Real “one of the most absurd ideas” he had ever heard of. “Both countries can’t even pass common regulatory policies or pro-trade measures [to turn Mercosur into a true free trade zone]. And we are to expect a common currency?”</span></p> <p><span style="font-weight: 400;">Patricia Pereira, an economist at Mongeral Aegon, shares the skepticism. &#8220;Take the Euro, for instance. It took decades for it to take off. Plus, all central banks in Euro countries are under the European Central Bank. Where would [a Brazil-Argentina central bank] be placed? Would we still have an inflation target system? Would it be one for both economies or would each country have its own?&#8221;</span></p> <p><span style="font-weight: 400;">Besides the details of a move towards a common currency, Ms. Pereira questions what Brazil would gain with that. Right now, the Argentine economy is in disarray. The country is facing rampant inflation and massive currency devaluation. &#8220;Right now, Brazil is more solid than Argentina—it will be even more so after the pension reform passes. It seems more like a statement trying to spur more trade, idea exchanges … more than really planning a common currency.&#8221;

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PowerJun 07, 2019

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BY Natália Tomé Scalzaretto

Natália Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Most recently, worked as an Editor for Trading News, the information division from TradersClub investor community.

BY Gustavo Ribeiro

An award-winning journalist with experience covering Brazilian politics and international affairs. His work has been featured across Brazilian and French media outlets.