The swap plot with China and the urgency for Luis Caputo’s dollars: how is the negotiation going?

The swap plot with China and the urgency for Luis Caputo’s dollars: how is the negotiation going?

“Let us remember that China had frozen the expansion that had been agreed by the government of Alberto Fernández (for about US$6,500 million) and the next thing would be, if a new agreement is not reached, the payment of the tranche used that expires in June, of approximately US$5,000 million,” he argues. Emilia Valmaster in Economic Sociology and CONICET scholarship holder, expert in sovereign debt problems, in dialogue with Ambit.

The “swap” is a currency exchange between the Central Bank (BCRA) and the People’s Bank of China (PBPC), which was established in 2009. In 2014, a second deal was signed, which was renewed last year, with a freely available tranche of 350 billion yuan renminbi (equivalent to about $5 billion) within an overall agreement for about $18. 000 million. This agreement gives the BCRA the possibility of improving the situation of its reserves.


The swap is a key element for the BCRA’s reserves.


The big problem is that, as Val points out, “the exchange and external situation continues to be fragile despite the calm seen in recent months in the currency markets and the process of reserve accumulation.” In fact, in the last ten days, an effect of this fragility can be seen in the rise of parallel dollars and the more negative dynamics of the stock markets.

Mention that A problem that Argentina has is that “Minister Caputo is prohibited from placing debt in international markets.”he International Monetary Fund (IMF) is not willing to provide fresh financing for the moment, in addition to that there are doubts about the liquidation of the harvest and external commitments must be met.”

In this framework, the presence, at the end of April, of the Secretary of Finance, Pablo Quirno, and the president of the BCRA, Santiago Bausili, On a mission to China they showed that the “swap” is a central issue on the Government’s agenda. It is not a minor issue. And the Government needs dollars, not payment demands at this time.

A string of conflicts with China

In this entire process, Bortz maintains that the big problem is that “Argentina offended China a lot, especially around Taiwangiven that José Luis Espert met a few months ago with the general director of the Commercial and Cultural Office of Taiwan in Argentina, Florencia Miao-hung.”

But that wasn’t the only time. On the one hand, The President said repeatedly that leftist governments are murderers. The chancellor Diana Mondino He recently pointed out that “the Chinese are all the same” and several times they assured that they will not do business with any communist government.

Thus, the repeated declarations of alignment with the West (mainly the US)the refusal to join the BRICS at the beginning of the mandate, the episodes of rapprochement of different representatives of the Taiwan government (including Chancellor Mondino herself, who breaks the traditional position of Argentine diplomacy in relation to the issue) and the technical inspection carried out on the space base installed in Neuquén They caused expected discomfort among the Chinese authorities and tensions in the bilateral relationship.

In addition, Noemí Brenta, doctor in economics and expert researcher in the history of Argentine external debt, mentions that the works carried out by China in Argentina were suspended, within the framework of the brake on public works that was applied by the Government. And to that is added “the decision not to enter the BRICs group, a step that had been achieved thanks to the support of China, Russia and Brazil.”

The Government seeks to get closer to China over the yuan

However, after the initial outbursts, it seems that The Government shows greater pragmatism in relation to Chinatrying to bring positions closer together and reach agreements, which is linked to the search for conditions (maintaining commercial exchange, promoting investments and sustaining financing mechanisms) that allow it to achieve some of the goals of its economic program.

But many analysts consider that the chances of reaching a successful port are few. “I think he is going to fall, and China will have to be paid. That’s why, the Minister of Economy, Luis Caputowas inquiring with several banks to get a bridge loan”, points out the economist and master in political economy Pablo Bortz about.

The big problem is that this puts Argentina in a weak economic situatione, not only because it does not have sufficient reserves to face that payment, but also because other international credit organizations may require maturities.

In fact, recently, it was said that Spain was threatening action before the Paris Club. The possibility was being considered that he would ask Argentina to pay the outstanding credits, if in the end it must cancel the swap with China.

Another thing that was commented in the city corridors was that Xi Jinping He wanted President Javier Milei to write him a personal request by letter for the postponement of the “swap”, something that seems almost intolerable for the local president after his international stance against the left.

The “swap”: a tough negotiation process with an uncertain ending

In this scenario, Brenta points out that “what is happening now is that It is a tough negotiation process. because the Government has greatly deteriorated ties with China and I do not think they are predisposed to a soft negotiation with Argentina.”

The national authorities seem to have taken a real dimension of the importance of China for the Argentine economy and that led them to look for a approach of positions. “However, this does not represent a radical change in the government’s external alignments, which are increasingly marked in a pro-Western sense,” warns Val.

The truth is that, even though the Government has “regretted” this type of behavior due to the fear of not renewing the agreement, Bortz points out that “it does not depend on them, but on China.” He recognizes that, “Although it is very likely that the BCRA does not want the ‘swap’ to fall, at this point, it is beyond their will and it is the Asian country that is going to make the determination.”

For Val, although it is difficult, It is not out of the question that an agreement will be reached.since it says that, despite the initial disruptions with the current authorities, “a long-medium and term view related to strategic interests in the region and in the country, can lead to a predisposition not to escalate conflicts and reach, under certain conditions, to a new negotiated agreement that sustains the swap.”

Thus, he anticipates that “The result of these negotiations will depend on the expertise of national diplomats.”. However, Brenta points out that still “we do not have details of what the intricacies of the swap conditions”. He mentions as an element to take into account that the previous tranche was paid in installments, so perhaps it is an option in this case as well. The problem is that this would greatly weaken the reserves and we must see how to deal with an eventual demand for money from China.

Source: Ambito

Leave a Reply

Your email address will not be published. Required fields are marked *

Latest Posts