Brazil And Argentina May Try A Financial Tango To Get Their Economies Moving Again

The two largest economies in South America haven’t always been perfect neighbors. In the 20th century, they were rivals. In the 1970s, there was a mini nuclear arms race between the countries, and through the 1980s, Brazilians thought a war with Argentina was a real possibility. Brazil overshadows Argentina in terms of population and GDP. Brazil’s GDP output is $1.8 trillion and Argentina’s GDP output is 0.5 trillion. Brazil has a population of more than 206 million and Argentina’s population is a paltry 43.6 million. The thought of a France-German type economic partnership never made much sense because of the population size difference and the belief they were too different economically to work together. Brazil exports 6.9 percent of its total exports to Argentina, and Argentina exports 15.7 percent of its total exports to Brazil.

But Brazil has a new president and Argentina does too, and those men want to break down the old taboos and put an export and financial plan together that helps both countries get back on the plus side of the economic growth. Brazil’s president, Michele Temer has a pro-business attitude and Macri believes in economic liberalism.

Michel Temer and Mauricio Macri recently met in February 2017 to discuss their relationship, and to forge an economic partnership. The meeting was a positive sign for investors like Jim Dondero, the CEO of Highland Capital Management. Dondero invested in Argentinian bonds before Macri won the election at the end of 2015. When Argentina offered another round on the bond market in 2016, Dondero and Highland Capital invested billions more in Argentina. Dondero isn’t the only hedge fund manager to buy Argentine bonds, but he is one of the most vocal supporters of what Macri is trying to do in the land of gauchos and leather producing cows.

There is a strong sense of nationalism in both countries, and that could get in the way of an economic agreement, according to the old politicians who remember the days of Juan Perón in Argentina and Getúlio Vargas in Brazil. Left-wing political populism has been the flavor of the day in both countries for decades. But both of the new leaders have a reason to promote economic and financial openness going forward. The Brazilian economy is hemorrhaging and so is Argentina’s. Brazil’s GDP growth shrank by 3.3 percent in 2016 and Argentina’s GDP shrank by 1.8 percent. Temer and Macri are pulling out all stops and trying to kick-start their economies, according to Jim Dondero. Dondero thinks a Brail/Argentina export partnership is another step toward both countries becoming fiscally credible again.

James Dondero is the co-founder of Dallas-based Highland Capital Management. Dondero started his career in the financial industry after graduating from the University of Virginia’s McIntire School of Commerce. Jim spent four years at American Express as a portfolio manager. He was also the Chief Investment Officer of Protective Life’s GIV subsidiary before he started Highland Capital Management. Dondero expertise in the financial and investment industries is well documented. Highland Capital has more than $19 billion in assets under management. Jim is also the Chairman of the Board of NexPoint, NexBank, and Cornerstone Healthcare. Dondero also is an MGM board member, and he is well-known for his charitable activities in the Dallas area.

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