On the eve of the president’s trip Alberto Fernandez a China, Argentina would have asked that government to extend the loan it made for US$20,464 million to strengthen the reserves of the Central Bank, which are at very low levels in relation to the maturities that the country has to face. The news was published by the media specialized in finance Bloomberg, but was denied by spokesmen for the Central Bank.
“South America’s second largest economy seeks to ask China to expand its 130 billion yuan ($20.6 billion) swap by an additional 20 billion yuan [US$3170 millones], according to one of the people who asked not to be identified because the conversations are private. Argentina has already made the request and the issue will be discussed next week in Beijing when the president Alberto Fernandez trip there for the celebrations for the Olympic Games, said another person, “said the note of Bloomberg.
The President will travel next week to Russia, China and Barbados. On the tour it is also expected that the Government asks Moscow for a loan of special drawing rights (SDR, the money from the IMF). The Fund had indicated that a mechanism was being designed so that the organization’s member countries could voluntarily channel SDRs from the richest countries to the poorest and most vulnerable.
Despite the fact that both requests to extend the SDRs with Russia and the swap with China are aimed at strengthening the Central Bank’s reserves, neither of the two operations involve fresh dollars for the monetary entity and their approval would have to go through several authorization processes. One conditionality that those governments could impose is that Argentina agrees with the IMF, since, despite the differences they have with the United States, they are two member countries of the Fund.
Argentina signed the first swap agreement with China in 2009, when the president of the Central Bank was Martin Redrado. At that time, the economist met with his Chinese counterpart, Zhou Xiaochuan, to agree on an exchange of currencies in pesos or yuan equivalent to US$10.2 billion. In 2014, during the presidency of Juan Carlos Fabrega, both organizations signed a second agreement, which was renewed in 2017 and supplemented at the end of 2018 with a supplementary agreement.
In August 2020, in turn, the current president of the BCRA, Miguel Pesce, signed a new currency swap agreement with the Bank of the People’s Republic of China (PBC) for a term of three years.
The only time the swap was used was in December 2015, when the government of Mauricio Macri and the then president of the Central Bank, Federico Sturzenegger, converted part of the yuan into dollars for a total of US$3.1 billion at an approximate financing cost for the BCRA of 4% in dollars, that allowed it to expand the entity’s liquidity at the time it had been decided to remove the exchange trap and unify the market.
The operation of swap It works this way: if Argentina asks to use that money, the interest rate and the exchange rate are agreed upon; pesos are then issued and deposited in the Chinese central bank, which, in turn, places yuan in the BCRA. This is a transitory exchange for terms of between one and three years.
In the next seven days, Argentina faces two obligations for a total of US$1,086 million with the International Monetary Fund (IMF) and in the coming weeks, in addition, it must pay US$193 million to the paris club and US$137 million to other multilateral organizations.
This Friday, the Treasury must transfer to the Fund the first maturity of the year for US$718 million as capital. Next Tuesday, meanwhile, he will have to make another payment for US$368 to cancel interest on the loan. According to the consultant 1816, the Central Bank has US$673 million left, equivalent to special drawing rights (SDR), which the IMF distributed in August of last year to all monetary entities to alleviate the effects of the pandemic.
Additionally, the president of the BCRA, Miguel Pesce, will have to use money from the available reserves to cancel maturities. Last week, gross reserves broke through the US$39 billion floor, closing at US$38.945 million. From that total, if you subtract the reserve requirements in dollars (savers’ deposits), equivalent to US$15,195 million, the swap with China (a loan that is not freely available, for a total of US$20,464 million) and the loans from other organizations (around US$3 billion), the net reserves of the Central Bank would be around US$1.5 billion, according to the latest report from the consulting firm 1816.