The US dollar, which has enjoyed the status of de facto world reserve currency since 1945, has come under growing strain as countries search for alternatives amid Washington’s efforts to use its financial might to bully and sanction adversaries into submission.
Argentina made a loan repayment to the International Monetary Fund worth the equivalent of $2.7 billion “without using dollars” on Friday, using Chinese yuan and special-drawing rights notes (the IMF reserve asset based on a basket of five currencies – the yuan, the euro, the dollar, the yen, and the pound) instead.
Argentina’s Economy Ministry said the payment – the first ever of its kind by Buenos Aires, was made in yuan and SDRs to hang on to dwindling dollar reserves in the Argentinian Central Bank’s coffers.
The Latin American nation, which is in the grip of a major economic and debt crisis, has turned to yuan as one means to help stabilize the situation, signing a 130 billion yuan ($19 billion) currency swap agreement with Beijing in April amid plummeting agricultural exports caused by an unprecedented drought, which has already caused $20 billion in damage.
Roots of the Crisis
Argentina and the IMF reached an agreement in 2022 to restructure the nation’s $44 billion debt. The IMF had approved a $57 billion loan to the administration of now former President Mauricio Macri in 2018, with current President Alberto Fernandez left to clean up the consequences of what he has dubbed "reckless," "toxic and irresponsible" borrowing. After his election in 2019, Fernandez asked the IMF not to move forward with transferring the remainder of the loan amount, citing a dearth of dollars in the nation's coffers to pay it back with.
Argentina's economic crisis has resulted in inflation topping 110 percent, and poverty reaching 40 percent of the population, even as GDP continues to grow, rising 1.3 percent year-on-year in the first quarter of 2023. International reserves have dwindled to about $28 billion, their lowest since 2016.
The Fernandez government is trying to climb out of the economic hole. A team from the Economy Ministry is expected to travel to Washington in the coming days to continue negotiations with the IMF.
Earlier this week, the nation's Central Bank announced that retail banks would be allowed to offer accounts in yuan.
Argentina has applied for membership in BRICS, and last month, media reported that Buenos Aires may be eligible to join the BRICS Development Bank as soon as August, when the proposal, put forward by Brazil, is discussed in South Africa. The bloc is known to be working on a new currency which would effectively serve as a major alternative to the dollar in global trade.
Argentinians will head to the polls in October 2023 to elect a new president and legislature, with President Fernandez indicating that he will not run for a second term. Primaries are scheduled for August, with economy minister Sergio Massa currently one of two declared candidates from the ruling Peronist Union for the Homeland coalition. The coalition was founded by Massa and former President Cristina Fernandez de Kirchner in June.
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