Argentina has paid $2.6 billion maturity to the International Monetary Fund out of its $44 billion loan program, according to the Télam state news agency on Wednesday.
After the country made the scheduled debt payment, Argentina's international reserves plunged to a new low since 2006 at $21.8 billion, according to the country's Central Bank. Economists, however, believe the actual amount is lower, possibly even negative.
Argentina initially took out a $57 billion loan from the IMF in 2018 under the government of Mauricio Macri. After taking office in late 2019, President Alberto Fernández renounced the remaining disbursements. He also renegotiated the loan in 2021 to $44 billion, of which the country has received $36 billion.
The IMF plans to update this loan agreement after the November 19 presidential runoff election between incumbent Economy Minister Sergio Massa and libertarian outsider Javier Milei to allow for additional disbursements.
Previously, Massa has repeatedly made IMF payments at the last minute this year using a variety of loans and currencies.
The Buenos Aires Times reported that this highlights Argentina's dollar shortage, which is putting pressure on the peso and making currency controls unsustainable.
The outlook for the Argentine peso is also murky, with JPMorgan predicting an exchange rate of 750 by the end of 2023 and 1,400 by September 2024. At the official exchange rate of 350, Argentina's monetary base is just over $20 billion, but it drops to $8 billion at the black market rate.
"They don't have enough dollars to convert the monetary base, so they would have to issue external debt just to start to dollarize," said Elijah Oliveros-Rosen, chief economist for emerging markets at S&P Global Ratings.
In late August, the IMF granted Argentina another $7.5 billion disbursement due to its ongoing economic crisis, foreign currency shortage, and diminishing international reserves.
The country was also running with high annual inflation at 138 percent, local interest rates stood at 133 percent, and 40 percent poverty levels. The black-market peso lost over 60 percent of its value this year in October. The gap to the official rate is above 150 percent.
According to the IMF's website, Argentina still has another S$1.77 billion in payments due in November and December.
Help from other countries
Argentina used a currency swap line from China and the remaining IMF special drawing rights (SDRs) from an August disbursement to make the payment on Tuesday, a source familiar with the arrangement told Bloomberg. It was the first time the country used the yuan to settle its debt obligations.
The exact amount of the China swap used by Argentina to make the IMF payment is unclear. Earlier this month, Argentine officials received approval from China to access an additional $6.5 billion from the $18 billion swap line.
"The renewed use of the yuan to pay its foreign debt showed Argentina's confidence in the Chinese economy and its recognition of the stability and value of the Chinese currency, which also reflected the growing importance and acceptance of the yuan in the international community," said Wang Peng, an associate research fellow at the Beijing Academy of Social Sciences, in an interview with the Global Times.
Argentina's use of the yuan to repay IMF debt is a milestone in the currency's internationalization. It also helps to increase the currency's global demand and improve its liquidity in the international market, thus enhancing its status as a global reserve currency.
Global central banks held $298.4 billion in yuan reserves by the end of 2022, accounting for 2.69 percent of total reserves. This represents a 1.62 percentage point increase from 2016, when the yuan was first added to the SDR.
Apart from Beijing, Argentina secured a $775 million loan from Qatar in August and a bridging loan from the Andean Development Corporation to help repay its debt.