Argentina’s Foreign Minister Diana Mondino and finance officials visited China this week amid an urgent need to renew their US$6.5 billion currency swap agreement. These swaps were frozen by China last December after the election of President Javier Milei, who labelled the government in Beijing “assassins” during his election campaign and has vowed to pivot towards the US.
Milei has since moderated his stance, recognising the economic challenges facing Argentina. With dwindling foreign exchange reserves and the looming threat of a 10th sovereign debt default, the administration is under pressure. The International Monetary Fund is conducting its eighth review, with the release of US$800 million in loans contingent on improvements in Argentina’s fiscal and forex situation.
Including the frozen US$6.5 billion swap line, Argentina has US$18 billion agreed in currency swaps from China for this purpose. Last year, US$5 billion of this was used to cover imports but this is set to expire in June.
Argentinian finance officials urgently seek three things from Beijing: a pushing back of the expiry of the US$5 billion in swaps, a renewal of the suspended US$6.5 billion swap line, and more Chinese investment as crucial projects like the Chinese hydroelectric project in Santa Cruz face funding shortages. China’s financial help is pivotal to Argentina’s economic stabilisation.
But, to Beijing, this financial outreach is at odds with Milei’s display of opposition to China politically, diplomatically, economically and on security issues.
Milei reversed Argentina’s stance on Brics membership by declining the invitation last December. The bloc, comprising Brazil, Russia, India, China and South Africa, had invited Argentina and five others – Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates – to become members from January this year.
Demonstrators gather outside the Casa Rosada presidential palace during a march demanding more funding for public universities and to protest against austerity measures proposed by President Javier Milei, in Buenos Aires, Argentina, on April 23. Photo: AP
He wants to dollarise Argentina’s currency and remove the credit controls that restrict the public’s ability to access and use the dollar. This means he is using the yuan to repay the IMF debt and for Chinese imports out of necessity, not desire.
If – and it’s a big “if” – he manages to adequately replenish Argentina’s dollar reserves, he may well abandon the yuan, potentially undermining China’s efforts to promote yuan usage in global trade and bolster its influence.
Milei has also chosen to buy American F-16 fighter jets from Denmark over Chinese JF-17s despite offers of joint production. This prompted the US to provide Argentina with US$40 million in foreign military financing (for the first time in more than two decades), a grant reserved for key strategic partners like Israel.
To further his plans to access advanced Western military hardware, technology and training, Milei recently applied to join Nato as a global partner. This underscores his political and security alignment with the West.
President Javier Milei shakes hands with Commander of the US Southern Command, General Laura Richardson, after signing an agreement to incorporate a Hercules C-130 aircraft into the Argentine Air Force, at the Aeroparque Military Air Station in Buenos Aires, on April 5. Photo: Argentine Presidency handout via Reuters
Given that Milei’s strategy is to de-align from China, it would make sense for Beijing to tighten the screws by refusing to activate the swap line.
At the very least, it could attach stringent conditions to its investments in Argentina, including to stop Milei from questioning the presence of China’s space station in Argentina or to simply avoid negative propaganda about China, its system or leadership. China’s aid in rescuing Argentina from economic turmoil warrants this respect.
China, however, should not quibble over Argentina’s decision against joining the Brics bloc and to pursue security alignment with the West. Instead, Beijing should reflect on how past Argentinian leaders shifted from anti-China rhetoric to cooperation.
China’s extensive currency swaps, loans and infrastructure investments have contributed significantly to stabilising politically and economically precarious countries like Argentina. Besides its US$18 billion currency swap agreements, China has provided Argentina with the most in commercial loans since 2007, distinguishing itself as a crucial partner in Argentina’s development.
Argentina’s Milei has a China conundrum of his own making on his hands
Chinese finance is behind the nearly US$5 billion Santa Cruz hydroelectric dam project and US$8 billion Atucha III nuclear power project, as well as various green energy initiatives, including wind and solar farms.
Moreover, China dominates Argentina’s agricultural export market, buying over 93 per cent of its soybeans and almost all of its barley. Chinese investment extends to several lithium mining projects, including four of the most developed ones, positioning Argentina as a prominent lithium supplier.
These investments underpin China’s partnership with Argentina and its economic growth – a foundation no rational politician would dismantle, especially as American commercial banks withdraw from Argentina and Western lenders hesitate to extend loans.
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US unveils ‘ambitious’ plans at Summit of the Americas
US unveils ‘ambitious’ plans at Summit of the Americas
But China also faces a significant challenge in its Latin American relations. There is bipartisan support in Washington for the Americas Act, which offers free trade agreements (like the United States-Mexico-Canada Agreement), concessional lending and investments to Latin American nations aligning with American standards of democracy, trade and rule of law. This initiative aims to curb China’s influence in the region, using trade rules to compel adherence to US standards.
For China, the concern is that the US could leverage the potential trade agreement with regional countries to enforce its trade standards on China.
For instance, Mexico has raised tariffs on some steel imports from China, echoing the US. The likes of Chile, Brazil and Argentina are also witnessing protests, lay-offs and shutdowns as cheap Chinese steel products flood their markets. Steel plant owners in Chile and Brazil have urged their governments to impose higher tariffs on Chinese imports to protect local industries and save jobs.
If these countries join free trade agreements with the US, they are likely to pursue harsher economic policies towards China. Beijing must start to plan for this eventuality.
Asma Khalid is an independent researcher and former visiting fellow at the Stimson Center
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