Clever Financial Maneuvering: Argentina Uses IMF Funds to Repay Chinese Currency Swap

Insiders revealed that Argentina plans to use a $7.5 billion allocation from the International Monetary Fund (IMF) to repay some of the funds borrowed from China through a currency swap line.

A knowledgeable source disclosed that considering the net foreign exchange reserves are Lily Plan Forexover $8 billion in the negative, Argentina is expected to repay the $1.7 billion swap received from the People's Bank of China (PBOC) in July this year, as early as this week. Additionally, Buenos Aires is not obligated to immediately repay the Renminbi used in June of this year, the source added.

This move reveals the significant bridge loan program provided by China to Buenos Aires through the currency swap agreement established with Argentina, the details of which have been kept confidential.

Argentina, an economy experiencing a funding shortfall, has utilized funds from the Chinese swap line to pay for the cost of imported goods and to service its debt to the International Monetary Fund.

By obtaining Renminbi to pay off IMF dues, Argentina has found a lifeline as the country struggles to maintain its $44 billion agreement with the IMF while dealing with a severe dollar shortage.

The swap agreement signed between the People's Bank of China and Buenos Aires in 2009 was the first of its kind with a Latin American country. Since then, the agreement has been renewed and expanded between Argentina's leftist and market-friendly governments, now exceeding $18 billion in total size.

Since neither China nor Argentina has disclosed details about the currency swap agreement or any loans, little is known about the specifics of the swap line signed more than a decade ago.

The executive board of the International Monetary Fund (IMF) approved a two-part review of a loan from 2022 on Wednesday, which is essentially a refinancing of a failed plan from 2018.

This will facilitate a $7.5 billion allocation, enabling Argentina to also repay $1 billion to the Inter-American Development Bank (CAF) and $775 million to Qatar, both of which were used to service loans from the International Monetary Fund.

Sources from the Central Bank of Argentina revealed that a portion of the allocated funds will flow to Qatar and CAF, reducing the usage level of the swap limit. Special Drawing Rights will be used to pay Qatar, while the debt to China will be settled in Renminbi. The debt to CAF is expected to be paid in dollars, according to his expectations.

Spokespeople for the People's Bank of China and the Inter-American Development Bank did not respond.

Argentina is facing challenges of triple-digit inflation rates, intensified capital controls, and plans to elect a new president in October. It is uncertain whether Argentina will continue to repay its debt to the International Monetary Fund thereafter, and whether it will need or be able to use the currency swap line again.

Although a decision on new allocations will need to be made in a program review in November, the International Monetary Fund will provide sufficient funds for Buenos Aires to cover the IMF dues for September and October.

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