Read more about the article The Dollar-Renminbi Tango: The Impacts of Argentina’s Potential Dollarization on its Relations with China

The Dollar-Renminbi Tango: The Impacts of Argentina’s Potential Dollarization on its Relations with China

The surprising victory of Javier Milei, the unconventional ‘anarcho-capitalist’ candidate, in the August primaries ahead of Argentina’s October 2023 general election, can be largely credited to his commitment to dollarize the Argentine economy, a move perceived as the ultimate solution to bring an end to the nation's economic turmoil. The potential shift from the local currency to the dollar has sparked concerns about Argentina's bilateral currency swap line with China. This swap line plays a crucial role in their bilateral relations and has also served as a means for Argentina to fulfill its debt obligations to the International Monetary Fund. The swap line is seen as a key element in preventing Argentina from defaulting on its IMF obligations, which is vital for both its economic and international financial stability. Given the significance of these developments, this article explores Argentina's potential shift towards dollarization and its implications for the country's relationship with China. It does so by assessing the critical role of the bilateral currency swap line between the Central Bank of Argentina (BCRA) and the People's Bank of China (PBOC) in backing Argentina's external payments. The analysis traces the history of the BCRA-PBOC swap line, highlighting how Argentina has relied increasingly on it during financial crises. It also examines the potential challenges and uncertainties that may arise if Argentina does indeed move towards dollarization, including the fate of the swap line and how it would be managed. Additionally, the article reflects on China's strategic approach to swap agreements with partner countries, emphasizing its flexibility in sustaining stable trade relations, even in the face of undesirable political shifts. Finally, it underscores the magnitude of China-Argentina trade relations, particularly in terms of Argentina's significance in helping China secure strategic resources, and how these relations impact Argentina's economic recovery. In conclusion, the fate of the BCRA-PBOC swap line is deeply intertwined with the broader economic and political dynamics between China and Argentina. Both nations are likely to seek pragmatic solutions to address the challenges posed by Argentina's potential shift towards dollarization, thereby ensuring the continuation of stable bilateral relations.

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Read more about the article Dollarization of Argentina: Revival of a Zombie Idea

Dollarization of Argentina: Revival of a Zombie Idea

Last March, a proposal of dollarizing Argentina’s economy arrived at its Congress. We summarize here the potential consequences of such a route in case the bill succeeds in getting approval. First, we point out the broad implications of dollarizing an economy. Then, we set out some cases of Latin American experiences with dollarization. Finally, we address the case of Argentina. The main potential benefit of dollarization would be elimination of domestic inflation, but at a very high cost. Argentina’s fiscal imbalances will not be eliminated by dollarization. Even though dollarization would prevent the printing of money, it imposes no constraints on government spending and borrowing. The only result is that monetary policy ceases to be available as an option, leaving almost no response capacity in case of external shocks. Moreover, dollarization creates the possibility of being exposed to pro-cyclical monetary policies unrelated to domestic necessities. It also eliminates seigniorage benefits. On top of more general features of dollarization and case studies, implementing dollarization now in Argentina would have to face hard-to-overcome challenges. Proposing dollarization under current conditions would require a selective default of domestic currency liabilities, a brutal devaluation, and/or a unilateral conversion of public deposits.

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Read more about the article Argentina avoids falling into arrears with the IMF

Argentina avoids falling into arrears with the IMF

On January 28, both Argentina’s government and the International Monetary Fund staff made announcements about an understanding on a new support program. Meanwhile, in addition to the payment of an amortization due on January 28, another payment is also expected in the first week of February. For now, at least Argentina’s default with the IMF has been avoided. The course ahead will depend on IMF disbursements as targets are reached.

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Read more about the article Argentina evita calote com o FMI

Argentina evita calote com o FMI

Sexta-feira tivemos anúncios de entendimento entre autoridades governamentais da Argentina e o estafe do FMI acerca de um novo programa de apoio deste. Enquanto isso, além do pagamento da amortização vencida ontem, espera-se também um pagamento na próxima semana, ambos referentes ao pacote anterior, de 2018. Por enquanto, pelo menos a entrada oficial da Argentina em atraso com o FMI foi evitada. Mas o curso à frente será tortuoso.

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Read more about the article Reservas internacionais chegaram de helicóptero, escreve Otaviano Canuto.

Reservas internacionais chegaram de helicóptero, escreve Otaviano Canuto.

Uma nova alocação de US$ 650 bilhões em Direitos Especiais de Saque (DES) do Fundo Monetário Internacional (FMI) para seus países membros entrou em vigor na última segunda-feira 23. O caráter extraordinário da atribuição iniciada desta vez traduz-se no fato de o seu valor corresponder a mais do dobro do somatório de todas as atribuições efetuadas até à data. Como as alocações seguem as cotas dos países do FMI, o alívio para aqueles que precisam de reservas virá como um excesso em outros casos. O FMI decidiu encontrar maneiras pelas quais os países com superávits de DES possam canalizá-los voluntariamente para os necessitados.

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Read more about the article BID, Multilateralismo, Brasil e Argentina

BID, Multilateralismo, Brasil e Argentina

- O futuro do multilateralismo, as perspectivas para o mundo com a eleição nos EUA e o papel do Brasil na arena internacional. - O grande desafio para o BID vai ser conseguir um aumento de capital porque o espaço de empréstimos que existia foi em grande medida usado este ano - O Brasil estará numa encruzilhada em 2021. Se pegar o caminho errado, "vai virar uma Argentina", alerta o economista Otaviano Canuto. - Pandemia leva Argentina à nova crise cambial; economistas analisam situação

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Read more about the article Covid-19 tem sido uma tragédia para a América Latina

Covid-19 tem sido uma tragédia para a América Latina

A América Latina continua sendo o maior foco da pandemia global, atualmente respondendo por 41% das mortes globais após os aumentos nas fatalidades de covid-19 no Brasil, México e vários outros países da América Central e do Sul nos últimos meses. Por sua vez, os números das quedas do PIB no 2º trimestre de 2020 revelaram quão fortemente negativo foi o impacto da covid-19 nas economias da região. O quadro geral contém uma diversidade de condições entre os países e um desafio comum de evitar nova década perdida.

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Read more about the article Trying to make sense of Mr. Trump’s tweet on Brazil and Argentina

Trying to make sense of Mr. Trump’s tweet on Brazil and Argentina

In our view, while clarification and formalization of measures do not come, I have to agree with a former colleague on the IMF Executive Board of Directors, the Argentine Hector Torres, who in a comment Monday on LinkedIn noted: “President Trump believes that governments of Brazil and Argentina are manufacturing currency devaluations to damage US farmers… and respond by raising tariffs on imports of steel and aluminum… the premise is wrong and the reaction folly! ”. Not without first contributing to the uncertainty that, as we have observed, has already negatively impacted the global economy.

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Read more about the article Em busca de sentido para o tuíte de Trump sobre Brasil e Argentina, escreve Canuto

Em busca de sentido para o tuíte de Trump sobre Brasil e Argentina, escreve Canuto

A nosso juízo, enquanto esclarecimentos e formalização não vêm, tendo a concordar com um ex-colega no Conselho de Diretores Executivos do FMI, o argentino Hector Torres, que em comentário segunda-feira no LinkedIn observou: “o Presidente Trump acredita que governos de Brasil e Argentina estão fabricando desvalorizações cambiais para causar danos a fazendeiros dos EUA… e responde aumentando tarifas sobre importações de aço e alumínio… a premissa está errada e a reação tola!”. Não sem antes contribuir para a incerteza que, como observamos, já vem impactando negativamente a economia global.

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Read more about the article The IMF, Argentina and Ecuador: Have Lessons Been Learned?
People receive a free meal from a soup kitchen in front of the International Monetary Fund (IMF) offices in Buenos Aires, on October 31, 2019, during the first social protest since Argentina's president-elect Alberto Fernandez won the South American country's presidential election. - The return to power of protectionist Peronists comes amid a lengthy recession and a debt crunch, raising market fears of a possible default on a $57 billion IMF loan. Fernandez has insisted his government would not default but rather seek to renegotiate the terms of the IMF loan, and sought to reassure voters that their bank deposits would be safe under his administration. (Photo by RONALDO SCHEMIDT / AFP) (Photo by RONALDO SCHEMIDT/AFP via Getty Images)

The IMF, Argentina and Ecuador: Have Lessons Been Learned?

One major difficulty faced by the IMF, or whoever designs macroeconomic adjustment policies in the current Latin American context, is the difficulty involved in reading appropriately – and responsibly – a country’s political dynamics and how people will react to austerity policies. Even if the IMF could hire Machiavelli as an adviser, its ability to take political tea leaves into account would not improve. As for avoiding risks entirely, that would only happen if the IMF fundamentally changes its mission – and stops lending to troubled countries entirely.

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Read more about the article The Essential presents: Argentina, A Story of Divergence

The Essential presents: Argentina, A Story of Divergence

A panel discussion in Washington DC on the present and future of Argentina's politics and economy. Guest panelists include Otaviano Canuto (Center for Macroeconomics and Development, Policy Center for the New South, and Brookings), Rafael Mathus Ruíz (DC correspondent for Argentina's La Nación newspaper) and Arturo Porzecanski (economist and professor at American University). Hosted by journalist Adrian Bono.

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Read more about the article Argentina: crônica de uma renegociação prenunciada, escreve Otaviano Canuto

Argentina: crônica de uma renegociação prenunciada, escreve Otaviano Canuto

Os atuais descontos nos preços dos títulos argentinos sugerem estar já sendo precificado um calote. Os títulos de dívida pública de 100 anos, por exemplo, lançados como símbolo do entusiasmo em 2017, estavam quinta-feira sendo negociados a 42 centavos por dólar, enquanto títulos com maturação em 2021 tinham preços de 48 centavos por dólar.

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Read more about the article Argentina’s half-baked adjustment has not worked

Argentina’s half-baked adjustment has not worked

Argentina’s peso tumbled and stocks plunged after last Sunday’s primary elections. The perception of a likely victory of President Macri’s opponents – Alberto Fernandez, and running mate, Christina Fernandez de Kirchner - has sparked a new shift in investor preferences away from peso assets, pressures on the exchange rate, and hikes on sovereign spreads. Unless fears of a return to policies prevailing before Macri are assuaged, the market rout tends to deepen.

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