Sunday, July 20, 2014

China/Argentina: China's President Xi Signs Agreements to Loan Argentina US$4.7 Billion

According to The Latin American Tribune, China President Xi Jinping arrived in Argentina today (July 20) where he signed trade and investment agreements to loan Buenos Aires  $7.5 billion to develop energy and transportation infrastructure projects.

Argentina President Cristina Fernandez de Kirchner and Xi agreed to a loan for $4.7 billion from a group of Chinese banks led by the China Development Bank for the construction of two hydroelectric dams in Patagonia.

As the documents obtained by The Latin American Herald Tribune reveal, the China Development Bank will provide $2.5 billion of the loans for the Hidroelectricos del Rio Santa Cruz projects, with Industrial & Commerce Bank of China providing $1.4 billion and Bank of China the other $801 million.

As the documents below indicate, Argentina will pay China Development Bank $23.5 million for the “arrangement fee” and $9.4 million for the “management fee.”

The $4.7 billion will be used to pay the China Gezhouba Group and Argentina’s Electroingenieria to build the dams, which will have an electricity generation capacity of 1,740 megawatts over the next 6 years. 

Argentina is seeking to increase electricity production from non-oil sources as energy imports continue to eat away the country’s falling reserves. The country posted a record energy deficit of $6.1 billion in 2013, approximately half of its fall in reserves.

COMMENT: The Chinese bank is also expected to grant a $2.1 billion loan to help finance a long-delayed Belgrano railway project that would make it more efficient to transport grains from Argentina's agricultural plains to its ports.

Argentina is the world's third-largest exporter of soy and corn and China is the main buyer of its soybeans and the world’s biggest soybean importer.

Having secured its oil supply from Venezuela and metals from Chile and Brazil, China is now moving to secure its food supply with Argentina. Argentina is expected to harvest 55.5 million tons of soy this year.

Xi, China's first president to visit Latin America's number 3 economy in a decade, will also sign a renewable agreement for an $11 billion swap operation between the countries' central banks over three years that will allow Argentina to pay for Chinese imports with the yuan currency.

Argentina’s central bank reserves have fallen 21% in the past year to $29.7 billion as Fernandez de Kirchner used reserves to pay off judgments and foreign debt obligations for a decade of expropriations and defaults. Argentina, which will have a large deficit next year, is anxious to re-access international capital markets after being shut-out since its $95 billion default in 2001. 

A court case brought by holders of unpaid defaulted Argentina debt has threatened to force the country into default again by blocking the payment of its newer bonds until the old ones are paid off.

China is Argentina's second-largest trading partner after Brazil. In 2013 Argentina's trade deficit with the Asian country increased more than 20% to $5.8 billion.

Xi arrived in the capital city of Buenos Aires on Friday after participating in a summit of emerging BRICS economies in Brazil earlier in the week. In Brazil, Xi pledged more than $8.6 billion in investments and loans while backing the creation of a $50 billion development bank.

Xi travels to Venezuela for two days on Saturday before finishing his trip in Cuba.