:quality(75)/cloudfront-us-east-1.images.arcpublishing.com/bloomberglinea/VPTDPVFFGFCEJPAO6VLHO2Q6WQ.jpg "Argentine President Alberto Fernández (left) and Brazilian President Luiz Inácio Lula da Silva during the latter's investiture ceremony on January 1, 2023. (Maira Erlich/Bloomberg)")
Bloomberg Línea — Since late last year, the Argentine government has delayed payments to the Brazilian Mint (CMB) and suppliers for the production of Argentine peso banknotes printed in Brazil, three people with knowledge of the matter told Bloomberg Línea.
Asked about the reports, the Argentine Mint said it has a delicate financial situation and is renegotiating debts from 2022 and payments due in 2023.
According to one of the people who spoke on condition of anonymity because the discussions are private, the non-payment dates back to October and amounts to about $10 million.
Of this amount, about $5 million is owed to the Brazilian Mint and another $5 million to Blendpaper, a company which produces banknotes and supplies paper money to the Argentine Mint.
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In response to Bloomberg Linea, the Argentine Mint (CMA) declined to comment on the payments delay with Brazil, but said that the new management of the agency is working on a “review and analysis” of its financial situation, and that it has an annual operating deficit of more than 11.5 billion pesos (approximately $58 million according to the official exchange rate) and a debt with foreign suppliers of more than $150 million, and which is currently being audited.
Since January 25, the Argentine Mint has a new chief, Ángel Mario Elettore, appointed by Economy Minister Sergio Massa.
“As a fundamental step for this new stage, we renegotiated the debts of 2022 and the advances of 2023, parceling everything out until June,” said the CMA.
The Brazilian Mint said that the contractual information is confidential and that the agreement with the Argentine Mint falls under the legal provisions that prevent the disclosure of data on business activities.
Blendpaper declined to comment.
Brazil’s Finance Ministry, which controls the Brazilian Mint, said the link between CMB and the Argentine Mint is a commercial relationship, and therefore declined to comment. “The finance ministry, as the supervising ministry, is not involved in this relationship,” the ministry said in a statement.
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One of the people who spoke to Bloomberg Línea said the payments were made normally from the beginning of the contract in 2020 until October 2022, when delays began to occur and the amount due accumulated, while another person consulted described the situation as “normal” in any business relationship.
Brazil’s President Luiz Inácio Lula da Silva, who was elected in October and took office in January, is close to Argentina’s President Alberto Fernández. In January, Lula visited the neighboring country on his first international trip as president, where he met with Fernández and expressed support for projects of interest to Argentina, such as a possible BNDES financing for the construction of a stretch of gas pipeline to Vaca Muerta, the location of Argentina’s shale reserves.
The Lula administration also expressed support for a plan to create a common currency between the two countries that could be used for trade - an attempt to reduce dependence on the dollar and prevent the outflow of foreign currency from Argentina.
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Agreement to produce banknotes
In 2020, the Brazilian Mint signed a contract with Argentina for the production of 400 million 1,000-peso banknotes. At the end of 2021 the contract was increased with a new order for 600 million banknotes, also of 1,000-peso denomination.
The Brazilian Mint contracted Blendpaper (formerly Fedrigoni Brasil Papéis) to produce the banknotes. The most recent contract between the Brazilian Mint and the Brazilian company foresees a payment of $35.3 million for the service, of which $19 million will go to CMB and $16.28 million to Blendpaper.
The delivery of the banknotes to Argentina was staggered in batches sent between February and October of last year. One source said that the contract is expected to be renewed once again, but the lack of payment for part of the service has been a stumbling block in the negotiations.
Public financial statements from the Brazilian Mint show an increase in the receivables from Argentina over 2022 through the third quarter, which is the latest data available.
The documents indicate that the amount receivable from the Argentine Mint increased by $4.2 million reais in the first quarter of 2022, which ended in March. In the second quarter, the amount was 18.9 million reais. And in the third quarter, the amount was 36.3 million reais.
The financial statements do not inform how much of this 36.3 million reais was in arrears. Until September, the state-owned company indicated it had 11.5 million reais in estimated losses from accounts with, as the balance of accounts overdue for more than 180 days is considered by the company as a probable loss.
The Brazilian Mint did not respond to Bloomberg Línea’s requests for clarification of the amounts.
Financial statements for the fourth quarter of 2022 have not yet been published by the company, which in Brazil is responsible for the production of coins, cash, passports, stamps, and medals, among other services.
Lack of dollars and hyperinflation
Argentina is facing an inflationary crisis, with price hikes that reached 98.8% in 12 months to January. In addition, a chronic problem of foreign currency shortages has the country’s government taking measures to discourage the outflow of dollars.
When the first money-printing contract with Argentina was signed in 2020, the official dollar rate was 74.57 pesos. On February 27, the value had fallen to 196.61 pesos, with the parallel quotation (the ‘blue’ dollar) reaching 373 pesos per US dollar.
The Brazilian Mint, founded in 1694, was one of the state-owned companies included in the National Privatization Program (PND) during President Jair Bolsonaro’s government. At the end of 2021, however, the government decided to remove the company from the list after a review.
The company recorded a net profit of 30.2 million reais ($5.8 million) in 2021, partly due to revenues from the Argentina deal. Before that, the state-owned company had had consecutive annual losses since 2016.
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What does the Argentine Mint say?
“From the new management of the Casa de Moneda Argentina [CMA], reviews and analysis began to reveal the economic and financial situation of the institution. The reality inherited from the former president [of the Mint] Rodolfo Gabrielli is worrisome,” the Mint said in a statement.
“We took over with an annual operating deficit of more than 11.5 billion pesos and a debt, which is being audited, with foreign suppliers of more than $150 million. Therefore, as a fundamental step for this new stage, we renegotiated with them the debts for 2022 and the advances for 2023, paying everything in installments up to and including June,” the statement added.
The mint said it has carried out a cost-cutting exercise.
“Thirteen directorates have been reduced in size and numerous expenses that led to this ruinous situation at the CMA have been eliminated. Management, order and transparency are the pillars on which Economy Minister Sergio Massa, entrusted us to work in this change of government and we have been doing so since day one.”
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