Argentina has made a historic payment to the International Monetary Fund (IMF) by using Chinese yuan and special drawing rights (SDRs) instead of US dollars, amid ongoing negotiations to restructure its debt with the lender.
The government of Alberto Fernández paid the equivalent of $2.7 billion in Chinese currency and in the IMF’s reserve assets, according to a statement from the Economy Ministry. This is the first time that Argentina resorts to freely available yuan from the currency swap agreement with China to pay the IMF. The yuan or renminbi is the legal tender of the People’s Republic of China.
The payment was due in June as part of the $44 billion debt that Argentina owes to the IMF, contracted by the previous administration of Mauricio Macri in 2018. The Fernández government has asked to reformulate the goals agreed with the IMF in 2022 given the impossibility of meeting them due to the impact of the worst drought in decades, which has affected agricultural exports, the main source of foreign currency for the country.
The Economy Ministry, headed by presidential hopeful Sergio Massa, said that the payment was made without using Central Bank reserves, which have been dwindling due to high inflation and exchange rate pressures. Massa has said that his “obsession” is to gather all the dollars needed to pay the IMF and get it out of Argentina “never to return”.
The IMF confirmed the transaction and said that it accepted this form of payment while negotiations continue. The IMF can exchange the yuan for SDRs and the buyer will probably be China but it can be any other country. SDRs are an international reserve asset used by the IMF, whose value is based on a basket of five currencies: the US dollar, the euro, the Chinese renminbi, the Japanese yen, and the pound sterling.
Argentina also announced that it will allow retail banking businesses to offer accounts in yuan, to make the renminbi a currency admitted by the country’s financial institutions. The measure is seen as complementary to the decision of enabling the negotiation of negotiable securities in yuan in the local financial market.
Argentina is facing a year-on-year inflation rate of over 110% and a poverty rate of 40%, according to official statistics. The country will hold primary elections on August 13 and general elections on October 22, with Massa as one of the main contenders for president.