Argentina woos China in hunt for support package

Argentina woos China in hunt for support package

05/06/18 - 14:23 - Move to build on currency swap with PBoC, says cabinet chief Marcos Peña

London

Argentina is in talks with China on contributing to a package of support from foreign lenders, including the IMF, as it works to restore confidence in its deficit-ridden economy, a senior minister has told the Financial Times. Marcos Peña, cabinet chief, said Buenos Aires hoped to build on a currency swap arrangement between Argentina’s central bank and the People’s Bank of China that was agreed in July 2015 and extended last year.

“We have an active swap with China that the previous government left us and we will try to make it bigger,” Mr Peña said in an interview in London.

Argentina turned to the IMF last month after the peso lost nearly a fifth of its dollar value in two weeks, as a surge in the US currency and Treasury yields led investors to sell assets in emerging markets.

Currencies of countries with large external borrowing requirements and large budget and current account deficits were especially badly hit, led by Argentina and Turkey.

Mr Peña said negotiations with the IMF were “very well advanced” on a package of aid that would also involve the World Bank, the Inter-American Development Bank, the CAF Latin American development bank, private sector lenders and swaps with central banks including the PBoC. He declined to say how much aid was being sought, although he said he hoped to deliver a “positive surprise” that would be “relevant for the market”.

Unconfirmed media reports have mentioned a figure of $30bn. The recent economic turbulence has led analysts to recalibrate their expectations for Argentina’s economy this year.

Private sector analysts now expect inflation to rise above 27 per cent this year, higher then last year’s rate of nearly 25 per cent and well above expectations for 2018 of about 22 per cent before the crisis hit, according to the central bank. Mr Peña said Argentina would seek a “perfectly normal standby agreement” from the IMF, with one part to be loaned up front and another part held back as a contingency fund.

The PBoC and the Central Bank of Argentina agreed a Rmb70bn swap line in July 2015, worth about $11.3bn at the time.

The agreement was extended in July last year and can be used “to facilitate bilateral trade settlements and provide liquidity support to financial markets”, according to a report in the state-owned China Daily. Going to the IMF is a controversial move in Argentina, which has painful memories of the fund’s involvement in the country after it defaulted on about $100bn of debt in 2001. But Mr Peña said it had been important to move quickly when trouble erupted on currency markets last month.

“We saw the first cloud and bought a giant umbrella, which gives us a good chance of navigating the storm,” he said.

Mr Peña said turning to the IMF had resulted in “a little discomfort and surprise” in Argentina but was essential as a means of reducing market volatility and “giving us objective criteria in terms of restraints” on public policy, rather than letting the markets dictate terms. Yet he stressed that selling any conditions attached to an IMF agreement to the public in Argentina would not be a problem as “we are already doing the things we should be doing”.

“The most important things we have already sold internally,” he said. In addition, he added, “we have to accelerate [meeting] our fiscal targets and the independence of the central bank” and speed up a reduction in funding provided by the central bank to the Treasury.

The government was also implementing a plan to reduce the amount of public debt denominated in dollars, and had recently passed laws to strengthen local capital markets and antitrust rules, he said.

Additional reporting by Benedict Mander in Buenos Aires

 

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