Brazil's invasion upon Argentina already an all-time record

One month lies ahead to close the year and Argentine deficit with Brazil has already beaten a new all-time record by accumulating $3.78 billions. Neither high dollar of the Argentine "productive model" nor the strengthened real have managed to temper imbalance with the neighbouring country. Brazil, which in fact should be the driving force of exports, ends up being the main supplier of Argentina. But, instead of winning market in Brazil, it loses it, particularly at the expense of China. Like in football, Argentina and Brazil play a nice game. Equipments and machines are imported in exchange for wheat, gas and other farming goods.

Argentine Deficit with Brazil - Trade balance in millions of dollars

Brazilian economy is supplying a great importing avalanche, which stems mainly from strength of Brazilian real.

This caused bilateral trade balance to post in November an only ARG$251-million deficit, which represents a 29-per cent decrease against 2006's.

All the same, Argentine trade deficit with Brazil this year will break a record, hovering around $4 billions. So far 2007, imbalance has already climbed to $3.78 billions, exceeding by almost 3 per cent that of the entire 2006. Undoubtedly, trade relation with main Mercosur partner will be one of the priorities of next economy minister, Martín Lousteau, and particularly of industry secretary, Fernando Fraguío.

In November, Argentine exports added up to $1 billion (growing 51 per cent interannual), while Brazil's foreign sales totalled $1.34 billion (25 per cent more than in 2006). According to Brazilian Foreign Trade Secretariat, main goods exported to Argentina have been cars, fuels, gas, engines for vehicles, transmitters and receivers (particularly mobile phones), shoes, power generators, pumps, compressors, as well as plastic, paper and cardboard manufactures.

This will be the fourth consecutive year in which Argentina loses commercially with Brazil. It no longer looks like a temporary reversion, after strong rebound of Argentine economy since 2003. During the last four years, deficit with the neighbouring country has added up to more than $13 billions.

Of course that this happens during a period when artificial peso weakness against dollar and sustained real appreciation coexist, which give a bonus to Kirchner's exchange rate in terms of a considerable competitive benefit. Even so, and despite Brazilian economy has also soared, posting import record, bilateral trade imbalance is getting more marked.

Trade patterns are also worrying because most Brazilian foreign sales to Argentine market are made up of industrial goods with high added value. However, Argentine exports to Brazil are wheat, gas and other farming manufactures.

The other warning sign is the Chinese advance over Brazilian market, which has already managed to move away Argentina to the third place in ranking of Brazil's suppliers. Here we also find asymmetry because Argentina keeps on being the second most important target market for Brazilian exports, behind US and quite above China.

According to some Brazilian analysts, bilateral deficit stems from the fact that Argentina's exporting supply does not match with Brazil's demand. This has even generated a substitution to the detriment of domestic production, as the vice-president of the Brazilian Foreign Trade Association, José de Castro, stated yesterday.

For that reason, Argentine deficit with Brazil should not be blamed on import restrictions. Quite the opposite, the neighbouring country is increasingly buying more every month from all parts of the world.

For some others, like Argentine ambassador in Brasilia, Juan Pablo Lohlé, the solution to redirect trade relation is to "attack" the Brazilian market as if it were a continent, rather than focusing on San Pablo, because there's great demand in other regions, which end up being supplied by different countries without resorting to San Pablo.