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Milei's Government Pays IMF Without Tapping China Currency Swap


Javier Milei, left, and his sister, Karina, arrive at the government house in Buenos Aires, Dec. 10, 2023, after he was sworn in as Argentina's president. Two days later, Milei's administration announced economic measures aimed at tackling the country's severe crisis.
Javier Milei, left, and his sister, Karina, arrive at the government house in Buenos Aires, Dec. 10, 2023, after he was sworn in as Argentina's president. Two days later, Milei's administration announced economic measures aimed at tackling the country's severe crisis.

On Thursday, Argentina's new government sent to the International Monetary Fund (IMF) its scheduled debt payment, thanks to a loan from the CAF - the Development Bank of Latin America and the Caribbean. In doing so, the government of Argentina's new president, Javier Milei, avoided tapping into a currency swap line Beijing was preparing to make available, with strings attached.

Since Milei's victory on November 19, and his inauguration on December 10, intense maneuvers between Buenos Aires and Beijing appear to have taken place, largely under the radar.

Among the dignitaries attending Milei's inauguration was a special envoy dispatched by Chinese communist leader Xi Jinping. Milei received Xi's envoy, Wu Weihua, accompanied by China's Ambassador to Argentina Wang Wei, on December 11.

The meeting was cordial, by all accounts, and prompted Milei to send a letter to Xi the next day. While the content of Milei's letter has not been made public, Argentine media indicated that it included language about the currency swap between the two countries Milei's predecessor had put in place.

Dollars and deals

The Chinese RMB, or yuan currency, and Argentine peso, swap is an arrangement in which the two countries make a certain amount of their own currencies available to the other party and has, in effect, worked as a "non-automatic line of credit" made by Chinese authorities to the Argentine government, as Argentine media put it.

Prior to Milei's meeting with Wu Weihua, Chinese representatives have conveyed to Milei's team that for the line of credit to be activated, including possibly tapping it to pay the IMF on December 21, Xi needs to know where Milei stood.

According to Infobae, an influential Argentine newspaper that has closely followed developments between Buenos Aires and Beijing, Milei's appointee to head the country's Central Bank held a closed-door meeting with Wang Wei and discussed the currency swap, i.e., the credit line that had been sitting there but needed Beijing's approval before it could be tapped by Milei's government.

The Chinese diplomat listened to the Argentina official before giving a simple answer: Argentina must clarify what it will do with its Central Bank because the yuan will be transferred there, and Beijing needs to understand what Milei and his foreign affairs minister, Diana Mondino's diplomatic agenda is.

On the campaign trail, both Milei and the political party he founded have staunchly said that they are not interested in advancing the communist country's agenda. Milei has also vowed to adopt the U.S. dollar as the country's official currency and close its Central Bank, which he identified as playing an important role in the undisciplined approach toward fiscal and monetary policy that resulted in the country's unsustainable inflation.

Upon being briefed by his Central Bank chief, Santiago Bausili, Milei was motionless, according to a report about the meeting published in Infobae.

Around the time Milei received Xi's envoy in Casa Rosada, Argentina's presidential palace, on December 11, Milei's finance minister, Luis Caputo, also was busy negotiating with the CAF, the Latin American and Caribbean regional development bank.

On December 14, Reuters and Infobae both reported that Milei's representatives had struck a deal with the CAF for a bridge loan of $960 million to help the new Argentine government make its December 21 IMF payment. On December 15, the CAF made the deal public through an announcement on X, formerly known as Twitter.

Milei's office declared the deal with the CAF as the new government's "first major victory."

"It looks like China has overplayed its hand," Christopher Ecclestone, a London-based strategist and longtime observer of Argentine political economy, told VOA.

On December 19, Argentine media reported that Beijing has frozen the currency swap that it had offered to Argentina during an October meeting in Beijing between Xi and Milei's predecessor, Alberto Fernandez. A day earlier, Beijing had summoned its ambassador to Buenos Aires back to its capital, Argentine media reported. It is unclear whether diplomat Wang Wei's return to China is Beijing's gesture of displeasure with Buenos Aires, or an occasion for authorities in Beijing to hear out its overseas representatives before making its next move.

As Ecclestone sees it, "China needs all the friends it can get, even the non-friends they can get," given how unpopular the Chinese brand currently is in international circles.

"If Milei is not hostile, he's a friend, in the Beijing scheme of things," Ecclestone said in a phone interview from London. The best thing China can hope for, he added, is for countries to not be hostile. To that end, both Xi and his diplomats have made progress, in the analyst's opinion.

"Milei was sounding hostile [during his presidential campaign], now he's not hostile, [that] has to be a win for Xi," he added.

In a sign that the new Argentine government is committed to continuing Argentina's diplomatic relations with Beijing, a new ambassador to China has been appointed in recent days. Earlier, Beijing reportedly had expressed unease over the fact that the previous administration's appointed ambassador had been called back, leaving the embassy with low-level diplomatic representation.

On Friday, Milei's government also proposed a bill to the Argentine legislature that Chinese companies investing in Argentina would be spared taxation if they already pay taxes in their home country, similar to treatments for companies from countries like Japan, the UAE, and Luxembourg, etc.

Aviation issues

However, there are also signs that Xi's hoped-for aviation deal with Argentina, highlighted as one of the key areas of cooperation when Xi granted Milei's predecessor a $5 billion credit line in November 2022, may be on the rocks. On December 18, an F-16 fighter jet model was literally on the table when Argentina's new defense minister, Luis Petri, met with the country's air force brass.

China has expressed a strong wish to sell Argentina its own fighter jets, Rick Fisher, a U.S. specialist on Chinese military strategy and warfare, told VOA. He also cited the Argentine military, especially its air force's excellent ties with its U.S. counterparts, as among reasons that would make acquisition of the Chinese fighter jets under Milei's watch unlikely.

Milei's team has also confirmed that dollarization is still its objective since he was inaugurated but refrained from giving a timeline. Although experts say dollarization has much more to do with stabilizing the economy, it is also seen through the geostrategic lens as a potential move for Argentina to get closer to Washington and away from Beijing.

"In principle, China, like Russia, is opposed to the dollar's hegemony — everywhere and at all times. Argentina is no exception," Steve H. Hanke, professor of applied economics at Johns Hopkins University and an ardent proponent of dollarization whose ideas have been shared by Milei on X, formerly Twitter, on multiple occasions, told VOA in a written interview.