China to send up to US$800M for reserves

China to send up to US$800M for reserves

Central Bank head Juan Carlos Fábrega travels to Beijing to close deals

Central Bank foreign reserves would be bolstered this year with up to US$800 million transferred by China due to the first tranche of the money of the swap agreement signed between both countries, sources close to the negotiation said yesterday.

“There will be a payment before the end of the year. It will be between US$700 million and US$800 million,” a source told Reuters yesterday.

Under the terms of the currency swap deal, Argentina can send pesos in exchange for the yuan and the loan would be payable in 12 months with an interest rate of between six to seven percent. Any yuan that the Central Bank gets from China could be freely converted to US dollars in Hong Kong, London or Singapore before arriving in Buenos Aires, thus allowing the money to build up the country’s monetary base.

Foreign reserves rose US$3 million yesterday and the Central Bank purchased US$20 million. Last week, reserves dropped US$209 million due to large energy import payments and dollars sold to maintain the US currency stable. So far this year, reserves have declined 7.2 percent, or US$2.207 billion from the US$30.599 billion on January 1.

Head of the Central Bank Juan Carlos Fábrega met on Sunday with his Chinese counterpart, Zhou Xiaochuan, in Basel, Switzerland, to work out the details of the swap and the mechanisms to activate it as soon as possible.

The currency swap agreement was a cornerstone of a string of deals President Cristina Fernández de Kirchner sealed with her Chinese counterpart Xi Jinping in Buenos Aires in July.

Now the Central Bank is trying to accelerate its implementation at a time of strong foreign exchange pressures amid the sharpest devaluation of the peso since January.

The swap, as well as other financing deals from China, are currently in the sights of the country’s main holdout creditor, Elliott Management. Late last month, NML Capital, a unit of Elliott, served subpoenas to Bank of China and Industrial and Commercial Bank of China (ICBC) in an effort to obtain information on US$6.8 billion in financing for deals signed by the two countries in July as well as the swap.

Trip to Beijing

Fábrega travelled to Beijing yesterday to integrate the delegation of the Ministry of Economy headed by Finance Secretary Pablo López.

The objective of the trip is to close the deals signed by the government with Chinese President Xi Jinping during his visit to Buenos Aires in July

The countries agreed on a loan for US$4.7 billion from the China Development Bank for the construction of two hydroelectric dams in Santa Cruz. China Gezhouba Group Corporation and Argentina’s Electroingeniería won contracts last year to build the two dams, which will have a combined generating capacity of 1,740 megawatts. The Chinese bank also granted a US$2.1 billion loan to help finance a long-delayed railway project that would make it more efficient to transport grains from Argentina’s agricultural plains to its ports.