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Argentina, China sign tentative currency swap deal

(Agencies)
Updated: 2009-03-31 16:06

BUENOS AIRES, Argentina -- Argentina and China have tentatively agreed to swap $10 billion worth of their currencies to enable South America's second-largest economy to avoid using dollars in trade between the nations, banking officials said Monday.

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It is the first such swap between China and a Latin American country, and allows Argentine businesses to buy Chinese imports directly in yuans. The move aims to help Argentina by cutting trading costs, giving it access to hard currency and strengthening its financial position as it is battered by the global financial crisis, analysts say.

China has stuck similar deals with South Korea, Malaysia, Belarus and Indonesia, the Xinhua News Agency reported.

The Argentina deal was announced by Zhou Xiaochuan, governor of the People's Bank of China, at the Inter-American Development Bank meeting in Medellin, Colombia. A source with the Argentine Central Bank confirmed it Monday, speaking on condition of anonymity because the announcement was not yet official.

Argentina primarily imports electronics, computers and chemical products from China, while the South American country exports agricultural commodities such as wheat, soy and corn, said Ernesto Fernandez Taboada, executive director of the Argentine Chinese Chamber of Production, Industry and Trade.

While the tentative deal could signal increasing Chinese interest in Argentina, its trade is far greater with neighboring Brazil. Brazil, the region's largest economy, represents 42 percent of Latin America's trade with China, while Argentina represents only 12 percent, Taboada said.

Argentine officials presented the tentative currency swap between the countries as a "contingency" plan to be turned to when necessary in order to shore up liquidity.

The swap would help Argentina by eliminating intermediate administrative steps required to exchange Argentine pesos for dollars and by shoring up liquidity in an indebted nation.

"It's the first time that China is helping liquidity here in Latin America," said Marcos Mollica, a Latin America fixed income strategist with UBS AG in San Pablo, Brazil said. "It could be the first of other, broader roles for China."