Argentina- Brazil: Local Currency Payment System

According to an announcement of the Ministry of Economy, as from October 2007, the Peso and the Real will be used instead of the U.S. Dollar in operations between both countries. Once the Local Currency Payment System (“LCS”) has been tested and is fully operational, its extension to the rest of the countries of Mercosur will be attempted, thus taking the first step toward the future creation of a common currency.

The original date proposed by both countries for the implementation of the LCS had been July 1, 2007.

The LCS will be an alternative for use, since the current system used by both countries will still be in force.

Basically, what is intended with the LCS is that an Argentinean importer will pay such transaction in Pesos and the Brazilian exporter will receive the payment directly in Reales. In the same manner, a Brazilian importer would pay for such an operation in Reales and the Argentinean exporter would receive the payment directly in Pesos. It is worth pointing out that in order for this to happen, the Argentine Central Bank as well as the Brazilian Central Bank will need to be actively involved in the system and they are currently working jointly to coordinate all operational issues.

The LCS’s benefits would be to:

(i)                 facilitate financial settlements between both countries;

(ii)                advance the regional integration process;

(iii)                reduce financial costs; and

(iv)               increase the liquidity and efficiency of the Peso/Real market.

For the correct setting up of the LCS it is still necessary for both countries, by means of their relevant bodies, to issue the regulations that will govern the whole process.

In future issues of Marval News we will comment on such rules as are issued.