BUENOS AIRES — Argentina has agreed to expand its currency swap deal with China by $5 billion — the Latin American country’s President Alberto Fernandez said on Tuesday, Nov. 15 — a move that would give it more firepower to defend the embattled local peso.
Argentina’s government needs to rebuild depleted foreign reserves to cover trade costs and future debt repayments, financial analysts said. Rebuilding reserves is also a key objective of a major debt deal with the International Monetary Fund (IMF).
“Today President Xi (Jinping) informed us that he authorized the Chinese government to make 35 billion yuan, meaning $5 billion, freely available to Argentina,” Fernandez said after meeting Xi at the Group of 20 (G20) summit in Bali.
China is Argentina’s second biggest trade partner and the second most important destination for Argentine exports.
Argentine Economy Minister Sergio Massa added that the currency swap will give the central bank more foreign currency to intervene in the exchange market and strengthen the peso.
Weakening local currency
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Despite strict capital controls, Argentina’s foreign reserves have fallen due to strong demand for dollars, both from importers and savers looking to buffer themselves from inflation expected to reach 100 percent this year.
Even with daily interventions in the currency market, Argentina’s peso has weakened close to 40 percent versus the U.S. dollar so far this year in the official market. In popular alternative markets in Argentina, the peso is far weaker.
Xi, who just secured a precedent-breaking third term as China’s president and premier, said his country will deepen cooperation with Argentina in areas including agriculture, energy, infrastructure and aviation, state broadcaster CCTV said.
Massa projected that Argentina will have an $8 billion trade deficit with China by the end of this year.
Reuters contributed to this report.