Brazil sets the agenda

• Abundant agreements and announcements were made during Cristina de Kirchner's visit to Brazil. • To begin with, the positive aspect of the encounter was that it was carried out without the inevitable presence of Hugo Chávez. • The truth is his absence was due to a request made by president Lula, tired of not very useful tripartite meetings with utopian projects such as building Southern gas pipelines or a train from Argentine to Venezuelan capital cities. • Yesterday, presidents Da Silva and Kirchner agreed to use their respective currencies in bilateral trade, instead of the US dollar. • This decision raises doubts, but if it is carried out and extended to other areas, it will inevitably show Brazilian currency's pre-eminence. • Besides, both presidents agreed Argentina will manufacture 130 ships for Petrobras, both countries will start building a binational dam, BANDES will provide loans to export outside the MERCOSUR trade bloc, both countries will probably adopt Japanese digital tv system, and exchange information about enriched uranium. • They also agreed that Brazilian jet manufacturer Embraer will use part of the military factory in the Argentine province of Córdoba, and that Argentina will buy aircrafts from Brazil for flag carrier Aerolíneas Argentinas. • Almost all agreements were included in the agenda by Brazil, and they form part of Lula's continental strategy.

As of October, Argentine and Brazilian central banks will allow using their respective currencies in bilateral trade, instead of the US dollar. This was agreed in Brasilia by presidents Cristina de Kirchner and Luiz Inácio Lula da Silva, after presenting the accord between both central banks, signed by their respective presidents Martín Redrado (Argentina) and Henrique Meirelles (Brazil).

For the time being, this is not a very significant measure. However, this decision could be the countries' first step -according to Lula's definition- towards future implementation of a common currency in the Mercosur. For this to be true, both countries need to coordinate their inflation processes. In the case of Argentina, first it should begin by acknowledging it.

The explanation for taking this measure is that the increment of exchange between the two markets is restricted by the rise of operating costs in dollars, and that the decision aims at bringing exchange expenses down.

Besides, the agreement states that «transaction costs of operations traditionally denominated in US dollars and the difficulties of trading in local currencies could discourage small and medium enterprises to trade in foreign exchange.»

According to the agreement, commercial flow between Brazil and Argentina and between these two countries and the Mercosur is «relevant.» It also specifies that «creating a bilateral payment system in local currencies could serve as a precedent for an eventual future implementation with the rest of the countries in the South American trade bloc.» The agreement also states that «this kind of system would allow economic agents to become familiar with the other country's local currency, move towards integration, and strengthen existing bonds between signatory institutions, increasing liquidity and peso/real exchange market efficiency.»