Argentina Reflects BIS Approval Amid Delicate Debt Restructuring

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Argentina could become the largest economy in Latin America to join the Belt and Road Initiative (BRI), a move that would allow Alberto Fernández’s heavily indebted government to deepen its trade and investment relationship with China.

However, such an approach is politically complicated. To resolve its external debt, Argentina must find a balance in its relations with China and the United States, its main creditor.

The country has already reached a deal with the majority of its foreign private creditors, who have agreed in principle to restructure bonds worth $ 65 billion. But with an economy in recession and default, a thirst for investment and currency, and the need to overcome the economic consequences of the Covid-19 pandemic, Chinese capital would greatly help a struggling Argentina.

Change policy forever

The BRI is the policy of the Chinese state and seeks pragmatic cooperation with Argentina. Launched in 2013, the initiative initially aimed to revive the ancient Silk Road and maritime trade routes, but has since broadened its scope to improve political and economic cooperation with countries that officially endorse it.

Yet in Argentina, political alignments are constantly changing. Bilateral relations with China have intensified under the government of Cristina Fernandez de Kirchner (2007-2015), but when the opponent Mauricio Macri came to power (2015-2019), he called into question several Chinese flagship projects. That changed when Alberto Fernández took office in December 2019.

Fernández intends to revitalize the relationship and rekindle the controversy backed by China dams in the province of Santa Cruz, as well as nuclear power stations. However, the government must first restructure its external debt with private bondholders, primarily based in the United States, and renegotiate its $ 44 billion debt with the International Monetary Fund (IMF), where the United States have an extremely influential role.

At the negotiating table, China tells Argentina to join the BRI to push forward the projects the country wants

By joining the BRI, Argentina could unlock Chinese funding for vital investments in infrastructure and transport, fossil and renewable energy, mining, manufacturing, agriculture, innovation and technology. ‘information. This would allow the country to fill infrastructure gaps and better integrate with countries like Chile, which benefits from strong trade corridors that connect it to foreign markets, thereby reducing logistics costs and improving competitiveness.

Diego Mazzoccone, executive director of the Latin American Center for Chinese Political and Economic Studies, which has close ties to the government, said of the BIS that the debt renegotiation “slows down membership a bit” because “The government needs a good relationship with the United States.

Mazzoccone said that would likely be overcome though. “For China, it is important that Argentina is not in default, that it can successfully complete foreign debt negotiations. No investor wants to invest in a defaulting country.

Argentina’s Foreign Ministry recognizes the global political aspect of BRI membership. A spokesperson said Dialogo Chino that there is “the intention to study the subject and move forward [with the initiative] there is interest and predisposition ”while specifying that all of Argentina’s trade agreements are based on the conclusion of the renegotiation of the debt.

Argentine Foreign Minister Felipe Solá recently told foreign correspondents: “We don’t think we should feel pressured to take sides. [between the US and China]”, Adding that he did not know if the” fight between two giants “would continue after the US presidential elections in November. “We are active spectators.

The Chinese Embassy in Argentina did not respond to requests for comment.

Interest despite a fragile economy

For Argentina and China, the current “comprehensive strategic partnership” between the two countries, a diplomatic status that China reserves for few countries, is “extendable to the relationship with the Belt and Road initiative” , according to a statement signed by Macri and Chinese President Xi Jinping after the 2018 G20 summit in Buenos Aires.

The language clearly stops before a formal BIS deal and follows warnings from US Secretary of State Mike Pompeo about onerous terms Latin American countries are joining.

19

Latin American and Caribbean countries have signed BRI cooperation agreements

A total of 19 countries in Latin America and the Caribbean have already joined the BIS, with the notable exceptions of Brazil, Mexico, Argentina and Colombia, the largest economies in the region. However, Argentina is already a “potential member” of the Asian Infrastructure Investment Bank (AIIB), the financial backbone of the BIS. Ecuador has become the first Latin American member of the AIIB in early 2019.

“Given the state of bilateral relations, the fluid dialogue between the two leaders and members of the AIIB, it is likely that the Fernández administration will change its position on the BRI,” said Jorge Malena, program director Executive on Contemporary China at the Universidad. Católica Argentina.

“There are a series of political and economic signs that demonstrate the unbeatable state of the bilateral relationship. Therefore, joining the initiative could be a next step, ”he added.

Since March, China has cooperated with Argentina in the fight against Covid-19 and in April, it replaced Brazil as the country’s main trading partner. In November, Argentina will participate as guest of honor at the China International Import Fair in Shanghai.

In July, China also renewed one of its two currency swaps with Argentina, worth a total of US $ 18.5 billion, bringing Argentina’s central bank reserves to US $ 43.3 billion. dollars.

Argentina remains excluded from international capital markets and a devaluation of the currency is expected as access to official trade is restricted. In June, inflation was up 42.7% year on year, but we expect worse. The United Nations Economic Commission for Latin America and the Caribbean (ECLAC) expects Argentina’s GDP to contract by 10.5% this year.

Funding and political links

Emma Fontanet, head of the international trade promotion department of the ICBC Foundation, linked to the Industrial and Commercial Bank of China, said Argentina’s membership in the BIS would be positive: “The signing of the Initiative would be positive. a signal that would allow us to further strengthen ties to develop trade, investment and technological exchanges.

For a country of its size, Argentina has a small domestic market due to its relatively few inhabitants. For Fontanet, the only way to achieve real growth is to export and secure investments and China plays a very important role. The relationship needs to be “nurtured” while “adding more value to it,” she said.

With Argentine companies struggling to access finance, Chinese buyers will partially pay for products before they are manufactured, Fontanet said. Chinese importers often agree to pay 30 to 40% upfront and the rest upon receipt of the product, as is the case today for some Argentinian meats.

For some of the large investments in Argentina, China provides financing which is then repaid with the profits obtained, such as the energy generated by the dams. The AIIB is important for the funding of BRI projects. In Argentina, projects are financed by the Industrial and Commercial Bank of China (ICBC), the strategic banks Exim Bank and the Development Bank of China, and the Bank of China.

“At the negotiating table, China tells Argentina to join the BRI in order to push forward the projects the country wants,” Mazzoccone said. “But Argentina is in a context of debt negotiations. He wants to look good with the United States [in order] to negotiate the debt and he is not moving forward on these projects, which are strategic for China, but which the United States does not want Argentina to do ”.

Malena agreed, “As the United States and China vie for world leader status, there is not only competition for trade and technology, but also for allies. For Argentina, the most advantageous [position] would be to foster fluid links with the two, while maintaining a pragmatic equidistance.

Whoever is best placed to help Argentina meet its development needs, politics seems to be back in full force. The recent appointment of a Kirchnerista at the Argentine Embassy in Beijing shows the government’s willingness to forge relationships. Sabino Vaca Narvaja, the special representative for trade promotion and investment in China, told state news agency Telam: “It is important that we regain the spirit of the strategic cooperation agreements signed under the government. by Cristina Kirchner in February 2015. “


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