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Brazil’s Lula and Argentina’s Fernandez seek to avoid US dollar as peso sinks

Argentine President Alberto Fernandez arrived at Brazil’s presidential residence to meet with his counterpart Luiz Inácio Lula da Silva as officials from both countries study how to avoid the dollar in trade between the neighboring nations.

Argentina’s economy looks particularly fragile after a run on the peso in financial markets caused a sharp devaluation of the local currency late last month, as well as a drain of US dollars from the central bank’s reserves.

Lula intends to propose a line of credit to finance Brazilian companies that export to Argentina with the intention of avoiding the use of the dollar, Finance Ministry Executive Secretary Gabriel Galípolo said.

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On Tuesday morning, Finance Minister Fernando Haddad told reporters that the two governments are studying possible guarantees for the Brazilian government to provide such financing.

Brazil is Argentina’s largest trading partner and the deal could allow Argentina some breathing room at a time when it is suffering from a shortage of dollars and is also looking for means to maintain trade.

Argentina reached an agreement with China that allows its companies to pay for Chinese imports in yuan. Lula, for his part, praised an agreement between Brazil and China to use the yuan in their bilateral trade while in Shanghai last month, while taking jabs at the dollar’s dominance in international trade and the International Monetary Fund.

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Argentina’s Economy Minister Sergio Massa has said his country is renegotiating aspects of its agreement signed with the IMF in 2022 to restructure about $44 billion in debt taken on by the center-right government of Fernandez’s predecessor, Mauricio Macri .

The economy ministry did not immediately respond to an AP request for comment on the planned agreements to abandon the dollar for bilateral trade.

Fernández’s visit to Brazil comes weeks after he announced that he will not seek re-election in this October’s elections. In Brasília he is joined by Massa and the Argentine ambassador to Brazil, Daniel Scioli, both considered possible candidates for the presidency.

In addition to economic issues, Fernández and Lula are likely to discuss restarting the Union of South American Nations as part of a broader agenda of South American integration.

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