(Bloomberg) — The International Monetary Fund expects China to defer some payments on a $18 billion currency swap line it provided to Argentina, a key step to free up funds and sustain the IMF’s massive financial support program for the country amid deep budget cuts under President Javier Milley.
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Argentina owed about $2.9 billion to the People’s Bank of China this month and $1.9 billion in July, according to data from the People’s Bank of China released last month.
The agreement reached last month between Argentine authorities and IMF officials on the latest overhaul of the country’s program included a commitment to refinance or roll over debt drawn from an existing $18 billion swap line between Beijing and Buenos Aires, said the people familiar with the deal, who asked not to be identified discussing the matter as the information is private.
The refinancing promise removes a major hurdle for Argentina’s $43 billion IMF program, as the government needs to show it has so-called financial guarantees to manage its massive debt.
Details of the refinancing or refinancing were not immediately disclosed, but one of the people suggested Argentina could refinance most of its debt while paying down some.
The IMF declined to comment. Argentina’s central bank did not immediately respond to a request for comment on Tuesday. The Chinese Embassy in Washington did not immediately respond.
The IMF’s Washington-based executive board is set to vote on the deal on Thursday, Economy Minister Luis Caputo said on Tuesday. The IMF will publish a staff-level version of the deal after the vote.
Caputo said in April that Argentina had begun discussions about a new IMF loan program that could include new funds, adding that Millay’s monetary and foreign exchange plans were also on the table.
The government of former President Alberto Fernandez used some of the Chinese money last year to repay part of an IMF loan, something no member country has done in the fund’s 80-year history. The government also used the Chinese money to finance imports because of a dollar shortage.
The largest source of Argentina’s total external reserves is its swaps with China, with the Argentine central bank’s liabilities now exceeding its assets. It is also the world’s largest renminbi swap agreement.
During his election campaign last year, Milley called the Chinese “assassins” and “communists” and questioned the future of Argentina’s relations with China if elected.
But in an April interview with Bloomberg News, the president struck a much more pragmatic tone, avoiding inflammatory rhetoric and making clear he would stay away from currency swaps.
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