Argentina to pay imports from China with yuan amid currency race – Internacional

2023-04-27 00:44:00

Argentina will stop paying for imports from China in dollars and will start paying in yuan with the aim of preserving its international reserves, announced the Minister of Economy, Sergio Massa, this Wednesday (26), amid a currency run.

The country will be able to “schedule a volume of imports in yuan per [o equivalente a] more than 1 billion dollars [R$ 5 bilhes] starting next month, which will replace the use of dollars in Argentina” in these commercial operations with the Asian giant, Massa said in a statement alongside the Chinese ambassador in Buenos Aires, Zou Xiaoli, at the ministry’s headquarters, transmitted by the official channel of the Economy folder.

Beijing and Buenos Aires had already implemented a “swap” or currency exchange mechanism that the South American country could use in case of need.

In this context, Massa considered that activating this possibility “improves the prospect of net reserves in Argentina”, and “allows to maintain the level of activity, the volume of imports, the pace of trade between Argentina and China and the levels of economic functioning that the Argentina needs”.

For several days, Argentina has been experiencing a strong exchange rate run, which reached its peak on Monday, when the dollar exchange rate, which is 228 pesos at the official exchange rate, reached close to 500 on the parallel market.

The demand for dollars, in a context of exchange controls, has driven the diminishing reserves of the Central Bank, which, this Tuesday, intervened in the market after the ‘blue’ dollar – as the parallel exchange rate is known in the informal market – was traded at 474 pesos, against 495 the previous day.

– Objective: preserve dollars –

The government believes that paying imports in yuan from its second largest trading partner will allow it to weather the storm that is hitting its reserves.

Resorting to the swap “gives us more freedom and adds capacity for action from the Central Bank, in these days when we have had to take the decision to intervene against those who, thinking that we did not have the economic capacity as a State, speculated and overspeculated”, stated the minister.

An agreement with the International Monetary Fund (IMF) to restructure a debt of 44 billion dollars (R$ 222.5 billion at current exchange rates) limits Central Bank intervention in the exchange market, with the objective of increasing reserves.

On Monday, Argentina’s international reserves stood at US$36.5 billion (R$184.5 billion), according to the Central Bank. However, analysts consider that net free availability reserves are significantly lower. On January 2, this amount was 44.6 billion dollars (R$ 225.5 billion, at today’s exchange rates).

Reserves are under constant pressure in Argentina, where the dollar is seen as a safety asset for the population and companies in the face of strong inflation, which exceeds 100% in 12 months.

This year in particular, the inflow of foreign exchange from exports in the agricultural sector will be strongly affected by the impact of a drought that hit this key sector for the country’s economy.

In this sense, Massa warned precisely about the effects of the “worst drought in history”, which means for Argentina “the harsh reality that there are more than 15 billion dollars [R$ 75,8 bilhes] of exports that I will not enter”.

“This challenge obliges us, and the IMF, to rethink the credit agreement”, warned Massa, in front of many Argentine businessmen.

Xou, in turn, highlighted the importance of the swap as a financial instrument to “protect and develop global markets, supporting companies so that they can use local currencies for commercial settlement”.

The second largest economy in the world and a major political opponent of the United States, China has been trying to internationalize its currency for a long time.

Recently, Brazil, during a trip by President Luiz Incio Lula da Silva to the Asian giant, signed an agreement with Beijing to carry out commercial exchanges in yuan and reais.

Currently, the US dollar accounts for 42% of the currencies used in international trade, against 33% for the euro, 6% for the pound sterling, 5% for the Japanese yen and just 2% for the yuan, according to the latest data from the system. international Swift payments.