For the first time, Argentina partially reimbursed its debt to the International Monetary Fund with yuans instead of U.S. dollars, as the country’s economy has been struggling with a lack of foreign reserves, rampant inflation and a severe drought affecting its export capacity.
On June 30, Argentina paid the International Monetary Fund the equivalent of 2.7 billion dollars for its debt installments. But for the first time, Argentina didn’t pay in U.S. dollars but in renminbi, the Chinese currency, and in Special Drawing Rights (SDR), IMF’s international reserve asset whose value is based on the five largest world currencies.
Argentina paid the equivalent of one billion U.S. dollars in renminbi. The other 1.7 billion dollars were paid in SDRs.
It is the first time the country has paid the international financial organization with yuans intended initially to finance imports from China. Last April, Argentina decided to stop making commerce with China in dollars to replace them with yuans instead, an opportunity for Argentina to keep dollars and for China to install its currency as a means of payment on the international market.
The two countries agreed on the extension of a swap, a currency exchange agreement, that brought the Chinese participation up to nearly 50 percent of Argentina’s international reserves with the equivalent of 5 billion dollars freely available for the Latin American country in renminbi.
China is currently Argentina’s second commercial partner and the second destination for Argentine exports. For instance, China is the first customer of their beef. Meanwhile, 21 percent of Argentina’s imports came from its Asian partner in 2022, according to government data, accounting for 17.5 billion dollars.
During a press conference on Thursday, Gabriela Cerruti, the spokesperson for the Presidency, mentioned the payments and said “the agreement with the Monetary Fund is respected and at the same time the Central Bank’s reserve will not be used or put at risk.”
On the same day, the Central Bank of Argentina also announced financial entities now accept the yuans as a currency for deposits in saving and checking bank accounts. It also means banks in Argentina can open up accounts denominated in the Chinese currency.
Argentines can also buy this currency now, and change it against pesos with the limit equivalent of 200 U.S. dollars per month, in a context of distrust of their currency amid out-of-control inflation, at a 114 percent annual rate.
Julie Kozack, the director of Communications at the IMF, confirmed in a statement that the “Argentine authorities continue to remain current on their financial obligations to the Fund.” The payment accounts for two reimbursements expected last week, but the IMF agreed to postpone the deadline until Friday.
IMF staff and Argentine authorities will work on the fifth quarterly review of the 30-month Extended Fund Facility arrangement agreed in March last year, which restructured the 44-billion dollar loan contracted in 2018, the biggest loan program that the IMF had ever granted for a country at the time.
An Argentine delegation has been sent to Washington for the performance review. The country also wants to negotiate an early distribution of the nearly ten billion dollars the IMF is supposed to provide this year.
Argentina is suffering from its worst drought in decades, severely affecting its economy, exports and capacity to reimburse its debt.
Gross domestic product is expected to stagnate this year after the economic rebound post-COVID-19. Economic losses from the lack of rain are estimated to be around 20 billion dollars, including a lack of 15 billion dollars from exports.
Argentine agriculture is the primary sector for export, and as such, the first source of foreign reserves. But soybean and maze crops shrank, which usually account for almost 40 percent of all Argentine exports.
Thousands of cows have died of thirst, accelerating meat and dairy product inflation.
The negotiations also occur in the context of the upcoming presidential election. Alberto Fernandez, the current president, and Cristina Kirchner, the current vice-president and former president, said they would not seek reelection. Sergio Massa will run for the governing coalition, the minister of Economy with enlarged responsibilities since last year. He has been in charge of negotiating the debt restructuring with the IMF.
