The United States has linked its backing for Argentina’s current negotiations with the International Monetary Fund (IMF) to President Javier Milei’s readiness to cut ties with China, particularly by ending a long-running currency swap agreement. This decision is viewed as a strategic move to diminish China’s increasing influence in the region.
At the end of the previous month, Argentina sought a $20 billion loan from the IMF. However, the nation has a history of defaults, having required the agency’s intervention 22 times to revive its struggling economy. Additionally, Argentina is grappling with one of the world’s highest inflation rates, currently at 84.5%, which has significantly decreased from a staggering 211% year-on-year at the close of 2023 under Milei’s administration.
Mauricio Claver Carone, a significant advisor on Latin American affairs during the Trump presidency, recently underscored the necessity of distancing Argentina from China’s economic reach. At a gathering in Miami, he described President Milei as a “valued partner” but stressed that Argentina must prioritize its relationship with the US and the IMF over its connections with Beijing.
A contest for regional dominance
The currency swap agreement established between Argentina and China in 2009 has been a crucial support for Argentina’s economy. This agreement enables the Argentine central bank to exchange currencies at a fixed rate, allowing access to the Chinese renminbi, which can subsequently be converted to US dollars. This arrangement has bolstered Argentina’s foreign reserves and enhanced its capacity to meet its debt obligations to various creditors, including the IMF.
However, the US perceives this deal as a means for China to exert considerable influence over Argentina’s economic decisions. Claver Carone described the swap as “extortionate,” indicating that as long as it exists, China will retain significant control over Argentina’s financial matters.
Entrepreneur and commentator on economics and international affairs Arnaud Bertrand tweeted:
“This is astounding and demonstrates that there’s truly no such thing as an ‘ally’ with Trump: he’s now coercing Argentina’s Milei by withholding an essential IMF loan unless he terminates a crucial currency swap agreement with China.
To make matters worse, the Trump administration, particularly Mauricio Claver Carone, Trump’s special envoy for Latin America, validated their bullying based on the premise that if Milei doesn’t end the swap agreement, ‘China will always be able to extort Argentina.’ Which is precisely what THEY are doing!”
In recent years, Argentina has encountered major economic hurdles, including soaring inflation, currency instability, and restricted access to global capital markets. The currency swap agreement with China has acted as a vital safety net, enabling the country to stabilize its finances and navigate challenging economic periods.
Milei has expressed interest in dollarizing Argentina’s economy, which would involve tying the Argentine peso to the US dollar. This initiative would likely require substantial backing from the US and the IMF and could potentially be advanced by ending the currency swap deal with China. Additionally, Milei has been a strong proponent of Bitcoin, highlighting the significance of currency competition freedom in Argentina.