Argentina Taps China Currency Swap Line to Help Repay IMF Loan

08 Aug 2023

Argentina has struck a deal with China’s central bank to settle more than half of its $2.7 billion debt due this week to the International Monetary Fund (IMF) in yuan by tapping a currency swap line, its economy minister said on Monday.

The government used yuan equivalent to $1.7 billion under the swap arrangement with the People’s Bank of China (PBOC) to repay part of the $2.7 billion due to the IMF, Sergio Tomás Massa said during a speech.

The balance was covered by a $1 billion bridge loan from the Development Bank of Latin America, Massa said. This means Argentina didn’t have to draw “a single dollar” from its own reserves to pay the maturing debt, he said.

The South American country, the third-largest economy in the region, has been grappling with economic crises, rampant inflation and defaults for years. In 2018, it reached a $57 billion loan deal with the IMF to prop up its ailing finances, but the debt had to be refinanced last year through a new $44 billion program.

This week’s agreement follows a similar arrangement in June when Argentina tapped the yuan equivalent of some $1 billion through its currency swap with China to cover part of a $2.7 billion repayment to the multinational lender due the same month.

A currency swap is an agreement established between two central banks to exchange their currencies. The pact allows one country’s central bank to obtain foreign currency liquidity from the other central bank usually to finance bilateral trade and direct investment. The China-Argentina swap line allows the Central Bank of the Argentine Republic (BCRA) to receive yuan from the PBOC in exchange for an equivalent amount of Argentine pesos.

China and Argentina first signed a currency swap agreement in 2009 for 70 billion yuan ($10.3 billion) and expanded it to 130 billion yuan in 2018. The pact had a provision that gave the BCRA the ability to freely access up to 35 billion yuan of the swap line.

In January this year, the two central banks activated the freely accessible portion of the swap to help Argentina ward off a foreign exchange crisis.

In June, the currency swap agreement was renewed for three years and the freely accessible amount was increased to 70 billion yuan, according to a statement released by the Argentine central bank on June 2. The expanded access has proved critical for Buenos Aires to avoid defaulting on its IMF loans.

Argentina has been building closer economic and financial ties with China for several years and is turning to the yuan amid a severe outflow of forex reserves, which fell to $23 billion in June from $35.4 billion in December 2022 and a record high of $65.3 billion in April 2019. The slump this year has followed a sharp drop in agricultural exports caused by a historic drought.

In April, the Argentine government also announced that the country will start paying for Chinese imports using yuan in a bid to preserve the country’s dwindling U.S. dollar reserves, giving a further boost to efforts by the PBOC to increase global use of the redback.