Argentina taps Chinese credit line to keep economy afloat during elections

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Sergio Massa, Argentina’s economy minister and the presidential candidate for the ruling centre-left Peronist coalition, has borrowed another $6.5bn-worth of renminbi from Beijing in a last-ditch effort to stabilise the economy ahead of elections on Sunday.

President Alberto Fernández, who is not running for a second term, announced the expansion during a visit to China on Wednesday.

Amid its worst economic crisis in two decades, Argentina’s international reserves have fallen to dangerously low levels, forcing it to draw on a currency swap line between its central bank and the People’s Bank of China.

The Central Bank of Argentina first began to tap the $18bn facility in April and has spent just under $5bn-worth of renminbi mostly to help Argentine companies pay for imports and to free up cash to shore up the peso.

Massa told a local radio station on Wednesday that the latest tranche would be used in the same way, and also to “pre-pay” repayments on Argentina’s loan from the IMF.

“It’s great news, it’s news that will help to calm [markets] a lot and give us more room to manoeuvre,” he said.

Massa is competing on Sunday’s presidential elections against outsider libertarian candidate Javier Milei and mainstream rightwinger Patricia Bullrich. Polls suggest Milei will make it to a second round run off on November 18, competing against either Massa or Bullrich.

Argentina has about $2.6bn of repayments coming due to the IMF in October as part of its troubled $44bn arrangement. Entering into arrears risks further unsettling markets that have been rocked by pre-election uncertainty following Milei’s unexpected first-round win and annual inflation hitting 138 per cent in September.

Argentina’s foreign currency reserves excluding liabilities are estimated to be $7.6bn in the red.

Salvador Vitelli, head of research at Buenos Aires-based consultancy Romano Group, which calculated the scale of the shortfall in official reserves, said the swap would allow Massa to “avoid having to search for dollars” to make its repayments to the IMF. The renminbi is one of five currencies in which the fund will accept loan repayments.

Vitelli said the latest renminbi tranche would also potentially free up cash for Argentina to intervene in parallel exchange markets, though it was unclear if the yuan themselves could be used to prop up the peso.

The Argentine currency has lost almost two-thirds of its value on parallel exchange markets over the past 12 months, and is at a near-record low of 972 pesos to the dollar. Analysts said a peso below the psychological barrier of 1,000 to the dollar could hurt Massa’s electoral chances.

Argentina’s government has not disclosed the rate of interest it pays on the China swap, and Bullrich criticised the deal in an interview with the Financial Times on Monday.

“We believe that in some of the latest [Chinese] loans there are clauses which we don’t know about and we are ready to re-examine them,” she said.

Milei, meanwhile, has said he would not pursue diplomatic relations with China, which is Argentina’s largest trading partner. He has described the Chinese government as “murderous communists”.

Massa’s foreign relations adviser Gustavo Martínez Pandiani told the Financial Times that the rate paid on the China swap was “very favourable for Argentina compared to that charged by other international credit organisations . . . including the IMF”.

He added the fund had been “inflexible” in late June, when Argentina came close to entering into arrears because the IMF would not release funds that Buenos Aires was counting on to make another repayment to the fund. Argentina ended up using $1bn of the China swap to make the repayment.

“This clearly shows that there is a transformation under way in the actors in international financial matters,” Pandiani said. “What the IMF is achieving with its sometimes inflexible attitude, is to end its [time] as the only lender of last resort for countries.”