Argentina’s Central Bank renewed a US$5 billion tranche of the currency swap it has with its Chinese counterpart, US$3 billion of which matured in June and the rest in July. Now, Argentina will have to start paying the maturities in 2025 and over 2026.

Media reports cast doubt over the Argentine administration’s ability to renegotiate the swap, as President Javier Milei is facing a diplomatic row with China and Foreign Ministry Diana Mondino’s future in the cabinet is uncertain. If the government had failed to renew the deal, it would have had to pay US$5 billion between this month and the next.

The South American country’s monetary authority released a communiqué on Wednesday stating that, together with the Central Bank of the People’s Republic of China, it had renewed the swap for the next 12 months.

“From that moment, the Central Bank will gradually reduce the activated amount of the swap over the following 12 months,” said the press release, meaning that Argentina will have to start paying in June 2025 and over June 2026.

“In this way, and coinciding with the maturity date of the current currency swap agreement, the tranche will be completely deactivated by mid-2026.”

The first agreement between both central banks was signed in 2009. In 2020, both countries signed a currency swap for US$6.5 billion, which Argentina used mainly to finance Chinese imports. In 2023, during an international reserve scarcity crisis, former President Alberto Fernández’s administration “activated” a tranche of the swap to pay for some of its maturities with the International Monetary Fund (IMF), a decision in line with China’s goal to “internationalize” the yuan.

According to the IMF’s seventh staff report on the program it has with Argentina, the South American country spent US$4.9 billion of the swap last year alone.

Santiago Notarfrancesco, a specialist in contemporary China and founder of Argentina-China business platform Negocios con China, said the renewal was “good news” for Argentina.

“It is also a sign of China’s long-term diplomacy, which takes more into account strategic interests than differences of circumstance,” Notarfrancesco said and added that pragmatism won over dogmatism for President Javier Milei’s administration. “You can say that you do not want to have relations with China, but reality imposes that you have to have them and very often.”

According to the Central Bank’s communiqué, the swap activation allowed the monetary authority to “manage the balance of payments flows at critical times for the domestic economy”. 

Wednesday’s extension will allow the Central Bank “to continue reducing the risks it faces during the current economic transition, which began in December 2023, towards a consistent and sustainable monetary and exchange rate regime,” the communiqué added.

 “The financial and economic ties between the two countries are strengthened,” the press release concluded.