RIO DE JANEIRO, BRAZIL – Amid the negotiations with the IMF for the debt and given the liquidity of the Central Bank’s funds, the Argentine government is currently negotiating the extension of a swap with China to protect the national reserves and support the exchange rate scheme.
Negotiations for this financial rescue plan have the backing of President Alberto Fernández. The Foreign Ministry, headed by Felipe Solá, and the BCRA, are being carried out, headed by Miguel Angel Pesce.
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As El Cronista has learned from official sources, the Argentine government is in talks with the Chinese administration of Xi Jinping and with the authorities of the People’s Bank of China to evaluate the extension of the US$19 billion swaps already granted to the country in 2020. The amount has not been defined yet, or at least that detail has not been disclosed.
However, it was learned that the BCRA’s idea is that China’s swaps should be computed as reserves to provide more sustainability. The issue is that using them in this way, the government explained, would not be cheap because China charges a rate similar to Libor but called Sibor.
The other option being considered is to allow the use of a percentage of the Swap that the People’s Bank of China may issue without having to pay that rate. During the government of Mauricio Macri, China extended the Swap with Argentina to a total of US$19 billion, which was renewed.
“The swap of 130 billion yuan, equivalent to US$18.5 billion, strengthens Argentine financial stability and is one more indicator of the confidence that such an important player as China places in our country,” said Solá at the time after the Central Bank of the Argentine Republic (BCRA) and the Bank of the People’s Republic of China (PBC) subscribed the extension of the currency swap on August 6.
“The agreement is for three years”, informed Solá, who highlighted the work with his Chinese counterpart, Wang Yi, and “the efforts of the embassies of both countries” to reach the agreement. The intention now is to extend in terms and amounts this particular loan from Xi Jinping’s administration. The Swaps are being renewed in installments, but it is a possibility to open it.
U.S. REPORT
Argentina’s negotiations with China for the extension of the Swaps are taking place given the government’s talks with the IMF for the debt and amid a scathing report from the U.S. Congress questioning China’s relations with several Latin American countries, including Argentina.
According to the U.S.-China Security Review Commission report approved by the U.S. Congress last week, there are severe objections to Xi Jinping’s administration.
On page 69 of the report to which El Cronista had access, a particular chapter is dedicated to the relations between China and Latin America. It warns about several points regarding Argentina’s ties with Xi Jinping’s government.
The American legislators object to installing a space station in Neuquén with possible military use and the development of 5G technology in the country. The issue of loans granted by China to the region under strong conditionalities is also highlighted.
In this sense, the U.S. Congressional report warns that “Chinese loans also potentially allow Beijing to influence the domestic and foreign policies of the indebted countries through cross-default clauses”.
Thus, it remarks that “existing Chinese loans are protected by entitling Chinese lenders to rescind and demand repayment when a borrower defaults on or cancels a loan from another lender.”
To exemplify these mechanics, the U.S. lawmakers’ report argues that China leveraged a loan cross-default clause to successfully pressure Argentina not to cancel the Chinese-financed Kirchner-Cepernic dams project in Argentina. And the same warns about Beijing’s proposed financing of the Belgrano-Cargas Railway plan. “Chinese lenders as a group have more bargaining power and more political influence.”
With information from El Cronista