Fearing default, Argentina's Macri accepts $8.7 billion Chinese currency swap
The People's Bank of China reached an agreement with the Argentine Central Bank today to expand its 70 billion yuan ($10.3 billion) currency swap with Argentina by another 60 billion yuan ($8.7 billion).
The agreement - over twice the $4 billion swap announced on August 16 - comes amid a severe financial crisis in Argentina that has led to over $30 billion in capital flight so far this year and the worst recession since the last debt crisis in 2001-02.
As of June, GDP was down 6.7% and unemployment had risen to 9.6% - the highest level in 12 years.
Today's agreement was a needed financial as well as political boost for President Mauricio Macri, who has faced massive protests and calls to resign since a 2016-17 debt bubble imploded in April.
The carry-trade debt bubble, known locally as the financial bicycle, contributed to a doubling in the country's public foreign debt to nearly $200 billion and to renewed fears of a bond default.
Argentina's foreign exchange reserves have fallen $14 billion in the last three months as the Central Bank sells dollars to prop up the peso - which nevertheless fell from 20 to the dollar in April, to 39 currently.
Avoided by global bond markets since January, Macri has since tapped lenders of last resort such as the Bank for International Settlements and the vulture fund BlackRock ($2 billion each in May) - and in particular the IMF, which issued a $50 billion stand-by credit line on June 8.
Macri has already spent nearly all the $15 billion drawn from the IMF credit line on June 22, and is seeking both an $18 billion advance and a $20 billion extension to the credit line.
The IMF agreed in principle today to a extension of $3-5 billion - but as yet no cash advance.
Chinese two-step
The Chinese-Argentine currency swap was originally signed in 2014 by Macri's center-left predecessor, Cristina Fernández de Kirchner, when Argentina was shut out of credit markets after its bondholders were blocked from collecting payment by a New York judge seeking to pressure the country to pay vulture fund holdouts a 1600% return.
Macri, who sought closer ties with the U.S., condemned the swap, and after taking office in late 2015, paid vulture funds an estimated 1160% payout and distanced Argentina from the Asian giant.
He then ordered construction on two hydroelectric power plants and two nuclear power plants cancelled in 2016 - an 85% Chinese-financed $20 billion investment.
But after trade and currency deregulation led to the current account deficit doubling to $31 billion, Macri changed tack and in June 2017 signed a three-year renewal of the 2014 currency swap.
While China is already Argentina's second-largest trading partner, a record $7.7 billion deficit with China made up 90% of its merchandise trade deficit last year. The currency swaps have helped finance this shortfall.
At: https://translate.google.com/translate?hl=en&sl=es&tl=en&u=http%3A%2F%2Fwww.ambito.com%2F934601-bcra-renueva-swap-con-china-por-mas-de-us-10000-millones
Greeted in Beijing during a state visit last year, Argentina's Macri has recently sought closer ties with China after his own deregulatory policies plunged the country into its most severe crisis since 2002.
= new reply since forum marked as read
Macri certainly did go to China with his hands out, didn't he?
Better to stuff flowers into them than to shake hands with him. Wherever his hands had been prior to that couldn't have been very clean!
What he has done to Argentina has been a non-stop crime spree. He and his fellow kleptocrats must be so ecstatic after picking the very bones of the economy in no time at all, and leaving it right back desperately in debt all over again.
Maybe once more the voters are finally going to see the light and elect a progressive again if the country endures until the next Presidential election.
Sooner or later they are going to have to start learning from history, aren't they?
How horrible the newest news. Shocking!
Macri, with his best friend, Nicolás Caputo?
Nicolás Caputo's brother, Luis, President of the Central Bank. Just one big happy, "rich" (on other people's
money) family, sitting at the top of Argentina's food chain? It would be so nice to see them fall from their perches.
Macri, partying like it's Dec. 10, 2015.
"I'll bring down inflation - it'll be the easiest thing!": Inflation doubled from an already high 20-25% (about average for Argentina since the 1940s), to 41% in '16, 25% in '17, and a projected 45% this year (155% in just 3 years). Real wages have fallen 15% - and will probably fall another 15% next year.
"Workers won't pay income tax": Over 800,000 formerly exempt employees are now paying thanks to bracket creep - a back-door tax increase made easy by very high inflation. Now, he's eliminating most deductions as well.
"Utility rates won't be raised, and the service will improve by harnessing market forces": Utility rates have been hiked, by decree, by an average of 1000% (1700% in the case of electricity) - essentially a tax increase of around 10% of an average income (small businesses have been hit hardest).
Blackouts have meanwhile increased by two-thirds despite a milder summer this year.
"You won't lose any benefits": Subsidized prescriptions, dental care benefits, subsidized mortgages, college stipends, netbooks for schoolchildren, birth control and vaccination programs, public tv soccer broadcasts, among many others. Gone (often by decree).
The AUH subsidy for poor children was maintained; but inflation has eroded its real value. Pensions likewise fell far below inflation this year.
"We'll invest record amount in public works, and they'll be a source of pride again": Highway investment did increase in 2017 - but only after falling sharply in 2016 (it's down sharply again this year).
Work on Numerous hospitals, schools, hydroelectric dams, nuclear power plants, and housing projects started before he took office was stopped - some 80-90% complete - and remain unfinished to this day. His family firms meanwhile received some $5 billion in contracts in 2016 alone (with varying results).
"There'll be no devaluation": Macri devalued the peso by a third in one fell swoop within a week of taking office - by decree. His family and cabinet even bought millions in dollar futures ahead of time, thereby directly cashing in from his own decision.
"Argentines won't have to worry about the dollar": The dollar jumped from 9.80 pesos when he took office, to 39 now. Even using the parallel rate, it's tripled from 13 to 40.
"We'll restore confidence in Argentina again": Capital flight rose from an already problematic $8 billion in 2015, to $22 billion in 2017 - and probably $40 billion this year. Most new foreign investment was speculative and short-term (it has mostly left during the crisis this year).
"We'll be part of the world again": Argentina was "rewarded" for having elected Macri with good press (for a while) and symbolic sops such as hosting the G20 this year. But under Macri, it's become best known overseas for its record, $50 billion IMF bailout signed this June - a high-access standy-by credt line (the most onerous and intrusive kind) that only three other nations are currently dealing with: Jamaica, Kenya, and Iraq.
Those are just the more salient ones - plus, things could get even worse and quickly. In Macri's defense I will say I approve of his doubling the share of federal revenue sharing going to Buenos Aires (from 2% to 4%), as the new mayor has put it to good use (up to a point).
Macri in a now-infamous 2015 ad promising that "workers will pay no income tax."
Not only has bracket creep pushed 70% more employees above the exemption (with no real increase in pay); but massive utility and fare hikes have cost average workers another 10% of their income or more - essentially a large tax increase in itself.
