Argentina renews US $6.5 billion swap with China amid financial restrictions

The activation of the second tranche of the swap left $1.6 billion unused

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Argentina has chosen to renew its exchange agreement with China in an attempt to alleviate financial pressure on the country – according to sources familiar with the bilateral negotiations – as reported by Argentine outlet Cronista. The activation of the second tranche of the swap, initially executed on October 18th of last year for approximately US $6.5 billion dollars, left US $1.6 billion unused.

These funds, which could have been used to strengthen bilateral trade and stabilize financial markets in Argentina, were part of a broader agreement reached between the heads of the Central Bank of Argentina (BCRA) and the People’s Bank of China (PBoC) last October.

The arrangement, facilitated within the framework of a Memorandum of Understanding encompassing four key areas, including Economic Research, International Affairs, Supervision, and Operations, establishes the payment of the remaining US $4.9 billion in four installments spanning from June to September of this year.

Amid speculation about the purpose of the upcoming trip to China by BCRA president Santiago Bausili, market observers anticipate a possible extension of the exchange agreement for a period of six months to a year. Such a move, while not indicative of immediate financial urgency, would serve as a precautionary measure, ensuring reserve availability to navigate Argentina’s ongoing financial constraints and accelerate the dismantling of exchange controls.

Despite prevailing uncertainties, industry experts maintain that the swap renewal reflects a pragmatic approach to safeguarding Argentina’s financial interests rather than seeking a larger capital injection. 

With the terms of the exchange agreement subject to confidentiality, prevailing market rates suggest a nominal interest rate of 6.6%, reflecting a premium of 400 basis points above the Shanghai Interbank Offered Rate (Shibor), which currently stands at 2.6% annually.

As Argentina navigates its economic landscape, the swap renewal underscores the delicate balance between financial stability and external dependencies. While critics argue that such agreements artificially inflate reserves, the potential benefits of ensuring liquidity amid trade imbalances and geopolitical considerations cannot be overlooked. Faced with growing challenges, Argentina’s commitment to China emerges as a strategic imperative to secure the nation’s economic future.

Main source:

Swap con China: el BCRA deberá desembolsar US $4900 millones  | Cronista (April 23, 2024).

Others related source:

Central Bank of Argentina seeks to renegotiate financial agreement with China. | Fundación Andrés Bello (April 19, 2024).