Global Courant
Argentina became one of the countries that used the Chinese bailout the most, without being able to avoid the crisis.
It was July 18, 2014 when Cristina Kirchner announced with fanfare the renewal of the swap. Under the gaze of her Chinese counterpart, Xi Xing Ping, the then president spoke of a new “win-win” global model in which “we all win” and assured that the US$11 billion operation sought to “stabilize” the dollar in the face of “speculative attacks” by vulture funds.
Ten years after the “comprehensive” strategic agreement, the swap practically doubled -it stands at US$ 19,000 million- and, nevertheless, the financial situation is much more fragile: the dollar is still tied to strong pressure, reserves are at historical lows and Argentina is much more indebted, now also with the Asian giant.
“Initially these swaps were made for a commercial purpose. Today, of 17 countries that activated them, only four did so under normal conditions, the rest were to use it as a substitute for currencies. We use the yuan to pay the Fund and we are one of the countries that most resorted to the Chinese financial bailout,” explained economist Ricardo Carciofi.
The researcher drew that conclusion from a paper published in April by the National Bureau of Economic Research (NBER) on the expansion of “China as lender of last resort.” According to the study, since the year 2000, it has assisted more than 20 countries with US$240 billion, 20% of the financing granted by the IMF in the last decade.
The scale of operations increased significantly in the last 8 years through rescue loans, prepayment of exports, swaps and reinforcement of the reserves of debtor countries. Argentina stands out as one of those countries that received the most continuous support, along with Mongolia and Pakistan, something that refers to the “serial” loans granted by the IMF in recent decades.
“The mechanics are similar to that of the US Treasury in Latin America during the debt crisis,” recalled Carciofi, a direct witness to the renegotiation with US banks during Alfonsín’s administration. “The Treasury would advance funds or a bridge loan (Bridge Loan) to pay the bank while you negotiated with the Fund and with the disbursement you would later pay the Treasury,” he explained.
Of the different types of Chinese bailout, the swap is the most frequent. Although Argentina signed its first agreement in 2009, it kept it dormant until it was activated in October 2014, after the debt default with the vulture funds. Then in 2018, the management of Mauricio Macri increased it to US$19,000 million and last June Sergio Massa extended the free use amount to US$10,000 million.
“Of the large countries in the region, we are the only ones with a swap, we all have a lot of trade with China, but in our case the help is due to permanent financial stress. Brazil does not have it because it has US$140 billion in reserves and a trade surplus with that country, we have a trade deficit of around US$9 billion,” Carciofi warned.
The study carried out by Sebastian Horn (World Bank), Bradley C. Parks (AidData, William & Mary), Carmen M. Reinhart (Harvard Kennedy School) and Christoph Trebesch (Kiel Institute for the World Economy) calls attention to the role of China: its credits are “opaque”, carry high interest rates and are mainly directed to the countries that make up the Silk Road.
To this day, the cost of the swap is a mystery. With few exceptions, the People’s Bank of China does not reveal the terms of these lines and Argentina stopped announcing the execution of tranches in 2015. “Argentina pays a margin of 4 percentage points over the Shibor rate (today 2.34%), while Turkey and Mongolia paid a margin of 2 percentage points,” the researchers calculated.
Although the mechanism cushioned the fall in the Central Bank’s reserves and the term can be renewed every year, Carciofi warns that “the average cost of the loans would be higher than that offered by other lenders of last resort.” This is higher than US Treasury swap lines, IMF loans, US Treasuries and Eurozone bonds.
