Argentina and China have agreed to extend their existing currency swap deal, a major boost for the government ahead of Sunday's crunch election.
Beijing has agreed to the government’s request to expand the deal and strengthen Central Reserves by extending the swap by US$6.5 billion, President Alberto Fernandez confirmed on Wednesday.
"What they have done is to extend the use of the [currency] swap that we had already been granted – we had asked for US$5 billion and they granted us US$6.5 billion, which represents a great relief for Argentina," Fernández told Radio10 in a live interview from Beijing.
The Central Bank's reserves stand at US$24.99 billion according to an official balance sheet issued on Tuesday, but net reserves are negative by about US$5 billion, analysts say. Strengthening its reserves is vital for Argentina given the scenario.
"We have just finished a very good meeting with President Xi Jinping. We raised our problems with him and once again the Chinese government listened to our requests and gave us very important help," added Fernández.
The People's Bank of China has made US$6.5 billion available to Argentina from a swap line the two countries share, President Fernández confirmed after the meeting. Fernandez said US$5 billion was originally requested and Xi granted an additional US$1.5 billion after talks.
The move comes just days before Sunday’s presidential election, with political uncertainty rocking the markets and the parallel exchange rate soaring.
Speaking to a local radio station, Fernández said the measure will allow intervention in the foreign exchange markets and for the country to "end the year calmly." The next government will take office on December 10.
In total, Argentina has an US$18-billion swap line with China that it has used at times this year to pay debts to the International Monetary Fund and finance imports.
An Economy Ministry spokesman said the activated part of the swap would be available from Wednesday onwards.
Economy Minister Sergio Massa is the presidential candidate for the ruling Unión for the Patria coalition, but the frontrunner according to polls is the libertarian economist and lawmaker Javier Milei, who proposes dollarising Argentina’s economy.
Last week Milei stirred the markets by declaring the peso to be "excrement" and advised citizens not to save in pesos – remarks that prompted President Fernandez to make a criminal complaint and a reaction from private banks who called for "democratic responsibility" from candidates amid fears of a run on the banks.
The foreign exchange market traded on Tuesday without major changes after the long bank holiday weekend. The parallel ‘blue dollar’ rose 0.5 percent to 985 pesos per US dollar compared to Thursday. Last week it surpassed 1,000 pesos per greenback.
The run on the peso comes amid runaway inflation that is running at more than 138 percent per annum and has only accelerated since August 14, when the government devalued the currency by 20 percent.
If no candidate obtains 45 percent of the vote or 40 percent with a ten-point lead over the runner-up in Sunday’s election, Argentina will elect its next president in a second-round run-off vote on November 19.