South America’s Top Economies Seek to Heal Diplomatic Wounds

(Bloomberg) -- Argentina’s President Alberto Fernandez will meet Brazilian counterpart Jair Bolsonaro in March for the first time, in a sign that both governments are working to overcome recent bad blood.

The pair will meet March 1 at the swearing-in for Uruguay’s new president, Argentina’s Foreign Affairs Minister Felipe Sola told reporters Wednesday following talks with Bolsonaro in Brasilia. It was Bolsonaro who proposed the get-together, Sola said, adding that Bolsonaro had sent ‘a hug’ to Fernandez.

Relations between the two key trade partners worsened late last year as Bolsonaro’s far-right administration clashed with Fernandez’s left-leaning government. The heads of state have traded insults and Bolsonaro refused to attend Fernandez’s inauguration. While tensions remain, Sola’s visit to Brazil’s capital is part of a push to find common ground.

Prior to meeting with Bolsonaro, Sola also sat down with Brazilian Foreign Affairs Minister Ernesto Araujo. They discussed topics including trade, the Mercosur customs union and Venezuela, while Argentina also made a public appeal for political backing on debt negotiations with the International Monetary Fund.

Mercosur Advances

A deep point of contention between both nations is Mercosur, the trade bloc consisting of Brazil, Argentina, Uruguay and Paraguay. While Bolsonaro has called for a swift implementation of the trade deal struck between the South American bloc and the European Union, Fernandez has signaled he is in no rush to enact the accord and even wants to change some of its terms. After meeting Araujo, Sola insisted that Argentina is willing to move forward with trade deals but needs to be cautious because of its current economic situation.

Under pro-market Economy Minister Paulo Guedes, Brazil is seeking to open its economy as aggressively as possible to free trade. On the other hand, Fernandez intends to maintain protectionist measures in areas where Argentina isn’t competitive, according to an Argentine official who asked not to be named.

“Our visit to Brazil is a sign of friendship,” Sola told reporters in a joint press statement with Araujo on Wednesday. “Argentina will try to not be a barrier to Mercosur advances.”

Deeply Intertwined

Despite political differences, the economies of Brazil and Argentina remain deeply intertwined. Annual trade between them consisting of goods as diverse as agricultural goods, shoes and automobiles totaled some $20 billion in 2019, according to Argentine data.

Argentina’s recession shaved roughly 0.2 percentage points from Brazil’s economic growth last year, according to Brazil’s central bank. While the Brazilian economy is expected to accelerate in 2020 to an expansion of about 2%, Argentina is forecast to shrink some 1.3% in its third consecutive year of recession, IMF estimates show.

What Our Economist Says

“Brazil and Argentina share more than a long border: both economies are exposed to commodities cycle, have low domestic savings and have had, over history, a tendency to overindulge in fiscal and monetary stimulus as a strategy to boost growth, rather than seeking productivity gains through reforms.”

--Adriana Dupita, Latin America economist, Bloomberg Economics

For both countries’ leaders, moving beyond past tension may be no easy task. Bolsonaro has said Argentines made a bad choice by electing Fernandez, who in turn has called the Brazilian president a racist and misogynist.

Still, weak growth means there’s no getting around the fact they will have to put aside their differences to help their countries, according to Newton Rosa, chief economist at Sul America Investimentos Dtvm.

“While the presidents have very different approaches, at some point they will have to meet and work together,” said Rosa. “Both economies will benefit from this.”

--With assistance from Mario Sergio Lima and Patrick Gillespie.

To contact the reporters on this story: Samy Adghirni in Brasilia Newsroom at sadghirni@bloomberg.net;Jorgelina do Rosario in Buenos Aires at jdorosario@bloomberg.net;Flavia Said in Brasilia at fsaid7@bloomberg.net

To contact the editors responsible for this story: Juan Pablo Spinetto at jspinetto@bloomberg.net, ;Carolina Millan at cmillanronch@bloomberg.net, Matthew Malinowski, Walter Brandimarte

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