Argentina is the second-largest economy in South America and an important partner for China in the region. In recent years, Argentina's economy has been in trouble, with high external debt, serious inflation, and poor livelihoods. In November 2023, Argentina elected a new ** Milley, who promised to adopt an aggressive "shock **" to save the economy. At the same time, he is counting on China's support to ease the foreign exchange crisis through a currency swap agreement. This article will analyze Argentina's new economic policy, as well as the current situation and prospects of Sino-Arab cooperation from the following aspects.
1. The plight of the Argentine economy.
The Argentine economy has been in recession since 2018, with gross domestic product (GDP) falling by 6 percent year-on-year in the third quarter of 20237%。Argentina's main economic problems are excessive external debt, insufficient foreign exchange reserves, and runaway inflation. As of September 2023, Argentina's total external debt reached US$330 billion, of which about US$150 billion was borrowed from the International Monetary Fund**. Argentina's foreign exchange reserves have fallen into negative territory and are unable to meet import and debt servicing needs. Inflation in Argentina reached a staggering 60% in 2023, leading to a significant depreciation of the peso currency and a serious reduction in the purchasing power of the population.
Argentina's economic woes are due to a number of factors, including political instability, policy inconsistency, structural problems, and changes in the international environment. Argentina's political landscape has long been dominated by two alternating political parties, the conservative cambiemos and the moderate frente de todos. The two parties have clear differences on economic policy, leading to policy repetition and uncertainty. Argentina's structural problems are mainly the economy's over-reliance on agricultural exports, the lack of a diversified industrial structure, and an inefficient public sector and tax system. Argentina's economy has also been affected by the international environment, especially the monetary policy of the United States, as well as the impact of the new crown epidemic.
2. Milley's "shock**".
Milley is the candidate of the Justice Party, who won the position of top leader of Argentina in the November 2023 elections, defeating Macri of the Republican League with 48% of the vote. Milley promised during the campaign that he would take an aggressive "shock**" to save the economy, a policy centered on devaluing the official exchange rate by 54% from 595 pesos to 1 dollar to 92 pesos to 1 dollar. In addition, Milley announced that he would push the peso to depreciate against the dollar by 2% per month, as well as implement a tight fiscal policy, cut spending, raise taxes, and restructure foreign debt.
Milley's "shock**" is a high-risk economic strategy aimed at improving Argentina's export competitiveness by devaluing the peso, attracting more foreign exchange inflows, improving the situation of foreign exchange reserves, and reducing inflationary pressures. However, this policy also has the potential to have serious negative effects, such as increasing poverty among the population, triggering social unrest, and undermining Argentina's international credibility. The success of Milley's "shock**" depends on his ability to stabilize the economy in the short term, restore popular confidence, and reach a compromise with the international community.
3. China-Arab currency swap agreement.
In Milley's "shock **", China's support is indispensable. Milley has already made a request to China to expand the currency swap agreement, while China has agreed in October 2023 to increase the size of the currency swap agreement from $4.5 billion to $6.5 billion, Argentina** reported. A currency swap agreement is when two central banks exchange their local currencies for each other's local currencies for bilateral** and financial use. The benefits of a currency swap agreement are that it can increase liquidity for both parties, reduce exchange rate risk, and promote the internationalization of the local currency.
The history of the China-Arab currency swap agreement dates back to 2009, when Argentina was facing the brunt of the global financial crisis and China wanted to expand the use of the yuan. The two sides signed the first currency swap agreement, which is worth $7 billion and is valid for three years. Since then, the two sides have renewed two currency swap agreements in 2014 and 2017, each with a size of US$11 billion and US$8.5 billion, respectively, with a validity period of three years. In 2020, against the backdrop of the pandemic, the two sides renewed a currency swap agreement with a size of $4.5 billion and a validity period of one year. In October 2023, against the backdrop of the Argentine economic crisis, the parties again expanded the size of the currency swap agreement, reaching $6.5 billion and being valid for one year.
The China-Argentina currency swap agreement plays an important role in the stability of the Argentine economy. Through the currency swap agreement, Argentina can obtain renminbi from China's central bank when needed, which can be used to buy Chinese goods and services, or in exchange for dollars in the international market. In this way, Argentina can reduce its dependence on foreign exchange reserves, alleviate the foreign exchange crisis, and protect people's livelihoods. According to statistics, since 2009, Argentina has received about $25 billion in yuan from the Chinese central bank, about half of which has been paid off.
Fourth, the current situation and prospects of China-Arab cooperation.
China-Arab cooperation is not only reflected in the currency swap agreement, but also involves many fields, including investment, infrastructure, energy, agriculture, science and technology, culture, etc. China and Argentina established a strategic partnership in 2004 and upgraded it to a comprehensive strategic partnership in 2014. The cooperation between China and the Arab States is based on the principles of mutual respect, mutual benefit and common development, which is in line with the interests and needs of both sides and has contributed to regional and world peace and stability.
The size of the two sides has grown significantly over the past decade, from US$10.4 billion in 2009 to US$16.5 billion in 2019. China is Argentina's second-largest partner, and Argentina is China's fourth-largest partner in South America. Argentina's export products have gradually changed from traditional agricultural products to industrial products and high value-added products, while China's export products include machinery and equipment, electronic products, automobiles, etc. China and Argentina are also advancing negotiations on a free agreement with a view to further expanding the scale and scope of bilateral agreements.
The investment cooperation between China and Argentina is also deepening, and China has become one of the most important investment countries in Argentina. According to statistics, China's cumulative investment in Argentina has exceeded 20 billion US dollars, involving energy, mining, infrastructure, agriculture, manufacturing and other fields. Among them, some major cooperation projects, such as the Belgrano Hydropower Station, the Santa Cruz River Hydropower Station, the Southern Railway Transformation, and the Satellite Communication System, have achieved remarkable results and provided strong support for Argentina's economic and social development. China and the Arab States are also providing more opportunities for cooperation, such as cooperation in emerging fields such as digital economy, artificial intelligence, and biotechnology, as well as cooperation under the framework of the Belt and Road Initiative.