Bloomberg — China will allow Argentina to freely spend more of a 130 billion yuan currency swap line the nations share after leaders met Friday in Beijing.
Chinese officials approved Argentina tapping up to 70 billion yuan ($9.89 billion) of the swap line, up from a previous limit of about 35 billion yuan, according to a central bank statement. That gives Economy Minister Sergio Massa more breathing room to battle a peso selloff that’s helping to fuel 100% inflation in cash-strapped Argentina before a presidential election later this year.
Massa’s meeting with People’s Bank of China Governor Yi Gang capped a weeklong trip to China. Geopolitics factored into the meetings, as Chinese officials have pushed to lower the world’s dependence on the US dollar. At the same time, Massa is renegotiating Argentina’s $44 billion deal with the International Monetary Fund in Washington.
Any extra cash is welcome news for Massa and his ruling Peronist coalition, which faces a tough reelection bid against the backdrop of a looming recession and inflation at its highest level in three decades. Argentina’s central bank has no liquid foreign reserves left, according to local economists’ estimates. That’s forced officials to tighten controls on imports that it doesn’t have the money to finance through the official currency market.
Although the entire swap line is counted in Argentina’s reserves, only a portion is actually allowed to be used by policymakers in Buenos Aires. Additional cash should help Massa intervene more in Argentina’s parallel exchange rate to contain a wide gap between it and the official rate, which is tethered by a myriad of controls.
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