Argentina Signs $8.7 Billion Swap Agreement With Beijing To Shore Up Sagging Peso

Embattled Argentinian President Mauricio Macri has been scrambling to shore up his country's struggling currency since the IMF's executive board finally approved a record - and expanded - $57 billion bailout loan with the explicit condition that the country's central bank refrain from using that money to support the Argentine peso.

But as Argentina's battered economy has continued to deteriorate, the peso's value has eroded dramatically as the central banks pushed , cementing its status as one of the worst-performing currencies of 2018, as traders ignored a series of frantic rate hikes that brought the overnight interest rate in the country to a staggering 60% (which appears somewhat more appealing next to the country's annualized inflation rate of 40%).


With Argentina's economy slipping into a recession back in September, Macri's government imposed strict fiscal controls to try and limit the country's reliance on international debt markets - markets to which it only recently regained access. The country's economic desperation, which has dented Macri's popularity and cast doubt on his chances of winning reelection next year, prompted us to joke a few months back that it might be time for the ECB to jump on the IMF bailout bandwagon.

But unfortunately for the West, which sees Argentina and its business-friendly government as a key ally in a region that is slowly falling under Beijing's sphere of influence, the savior that has emerged to shore up the peso, which has stabilized in recent weeks, though it remains near all-time lows, is not what US leaders would have hoped - particularly with this year's G-20 conference, set to take place in Buenos Aires, only days away.

As the South China Morning Post reported on Thursday, China and Argentina are nearing a swap deal with China that would add another 60 billion yuan ($8.7 billion) to the Argentine central bank's reserves, an influx of capital explicitly intended to boost confidence in the peso and help alleviate the country's economic crisis before it enters Venezuela territory. The economic lifeline is particularly unnerving given decisions by Honduras and El Salvador to switch their diplomatic recognition from Taipei to Beijing, an unequivocal sign that their political and economic fealty now lies with the PRC.

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