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OP-ED | 03-06-2023 06:12

Slow boat to China

All policy here is driven by the desperation arising from the parlous state of Central Bank reserves.

Perhaps the main question facing international relations today is whether we continue to live in a multilateral world or whether an intensified Sino-American rivalry is morphing into a new version of the bipolar Cold War – in either case the constant Argentine attempt to have it both ways, as currently represented by the mission to China, is a clumsy response. That mission is hardly the best timing when the pleas for an advance of US$10 billion from the International Monetary Fund hang in the balance – unless hopes for that assistance are already dwindling or unless the idea is that flirting with China will improve the conditions for the IMF advance (both the sum and the facilities for money market intervention).

In any event all policy here is driven by the desperation arising from the parlous state of Central Bank reserves – several billion dollars in the red in net liquid reserves, a sum exceeding the gross liquid reserves according to some calculations although all figures here hinge on how the currency swap with China is defined (a point in favour of Economy Minister Sergio Massa’s mission). This desperation is causing Massa to multiply his usual duplicity beyond almost simultaneously buttering up to Beijing and Washington (as both the seat of the IMF and the capital of its biggest shareholder, the United States) – he is also fishing for dollar trade substitutes from the New Development Bank of BRICS (Brazil, Russia, India, China and South Africa) after striking out with its Brazilian equivalent. Argentina is thus already anticipating its entry into BRICS since New Development Bank funds have hitherto been restricted to the member quintet.

The perception of China as a sugar daddy (either directly or via BRICS) is enthusiastically embraced by national deputy Máximo Kirchner accompanying Massa and by Argentine Ambassador to Beijing Sabino Vaca Narvaja even more than the minister himself but needs to be placed in perspective. Firstly, the notion of the IMF and China as an either/or proposition to be Argentina’s saviour should be measured against the fact that Massa’s host is itself the third most important shareholder in the monetary organisation after the USA and Japan (which in recent years has taken an increasingly dim view of any countries making friendly gestures to Xi Jinping’s China) – thus not so easy to cut deals with Beijing behind the IMF’s back. Secondly, Chinese interest rates more than double those of the IMF (which explains the Mauricio Macri Presidency’s choice of the latter when a major creditor was needed) while also imposing the surcharges so bitterly disputed by President Alberto Fernández at every international forum he attends. Thirdly, the yuans borrowed to replace greenbacks in trade or strengthen reserves can only be returned via dollars, not pesos. Lastly, Chinese financial assistance to dozens of cash-strapped countries worldwide this century has always come with a variety of conditions – no reason to expect any difference now from the increasingly assertive Xi presidency with key sectors such as lithium and 5G network technology at stake.

Argentine diplomacy is conditioned by not only a drought-stricken economy’s acute lack of hard currency but also the widespread perception both at home and abroad of a Frente de Todos government on its way out and headed by already a lame-duck president. Paradoxically enough, this seems to be more of a complication with friends than with others – while the IMF is anxious to avoid a crisis in a G20 country because of the wider implications, Brazil seems cautious about any strong commitment despite Lula’s ideological and personal affinity with his Argentine colleague since they are already looking ahead to the next government. Allowing ideology to play a role in defining international relations alongside economic interests does not help – pushing for the reincorporation of Venezuela into regional organisations does not seem to draw much economic benefit from Brazil while being negatively received in Washington (even if the energy dependence from the Ukraine has apparently softened US hostility towards the Nicolás Maduro regime). Nor can ideology compete with the permanent interests of democratic nations at least, as demonstrated by last weekend’s regional and municipal voting in Spain bringing forward their general elections to next month – the high hopes at the start of 2023 set in the Spain of socialist premier Pedro Sánchez assuming the European Union presidency in midyear and tilting it Latin America’s way will instead see both Fernández and Sánchez effectively lame ducks this time next month.

Yet no final conclusions before seeing what Massa brings back from China. 

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