The lack of dollars in the central bank’s international reserves forced Argentina’s government this Friday to make an unprecedented decision: for the first time, it paid off its debt to the International Monetary Fund (IMF) in yuan for an equivalent amount of $1,000 million. . Another 1,700 million was paid out in Special Drawing Rights (SDRs), which are considered the IMF’s currency as it is a reserve asset made up of a basket of the world’s major currencies.
This is the first time that Alberto Fernández’s board has used freely available yuan from currency exchanges with China to pay the international organization. These currencies were intended to finance the Asian giant’s imports, but it was already expected that they could be used for other purposes.
“The payment of the June maturities was made without dollars but in SDRs and yuan,” said a statement from the portfolio led by Sergio Massa. The IMF confirmed the transaction in another: “The Argentine authorities continue to honor their financial commitments to the fund.”
The payment corresponds to two maturities from last week, but the Commerce Department received IMF approval to postpone the payment until this Friday. The agency also accepted this form of payment as long as the debt restructuring negotiations in Washington were ongoing.
The Argentine team has asked to restate the budget and reserve accumulation targets agreed with the IMF in 2022, which cannot be met due to the impact of the worst drought in decades. Rural areas are Argentina’s most important economic engine and the losses due to the lack of rain amount to around 20 billion dollars. The Argentine government is also trying to get an advance on the nearly $10 billion it was due to receive from the IMF this year. In case of acceptance, the agency will set certain conditions in return.
The negotiations are taking place in the middle of the election campaign, with Massa in the dual role of economy minister and Peronist pre-candidate for the presidency. The country will hold simultaneous and compulsory primary elections (PASO) on August 13, considered a major national poll, and general elections on October 22, in which Argentines will elect Alberto Fernández’s successor.
This week, in a clear campaign tone, Massa indicated that everything must be done to pay the IMF and “get it out of Argentina”. Recourse to the fund, he stressed, “means making objectives, commitments and commitments along the lines of an economic program, it means giving up part of your autonomy in order to commit yourself to a program”, stressed the candidate of the coalition “Unión por la Patria “. (which replaces the Frente de Todos).
The ruling party’s commitment to Massa is risky given the country’s critical economic situation. After two years of notable growth due to post-pandemic reactivation, Argentina’s GDP is expected to stagnate in 2023. Inflation is out of control at 114% yoy and is estimated to be close to 140% at the end of the year. GDP is stagnating. The central bank’s net reserves are negative, which has prompted the government to limit imports as much as possible and impose several foreign exchange restrictions. Unlike other trading partners, China has responded to Argentina’s calls for help with one clear goal in mind: to accelerate its penetration into Latin America, a key continent for food, minerals and fuel supplies.
This week, the Central Bank of the Argentine Republic unblocked accounts in yuan. Argentines wishing to buy this currency can buy it in any currency subject to the maximum limit of $200.
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