Argentina plans to pay for Chinese imports in yuan instead of US dollars to preserve its dwindling foreign reserves, Argentine Minister of Economy Sergio Massa said on Wednesday.
The South American country would be able to “program a volume of imports in yuan worth [the equivalent of] more than US$1 billion from next month,” Massa said at a meeting in Buenos Aires with Chinese Ambassador to Argentina Zou Xiaoli (鄒肖力).
This would “replace” the use of Argentina’s US dollar reserves.
Photo: AFP via the ArgentinE Ministry of the Economy
The Argentine government on Tuesday accused the country’s opposition of fueling a dramatic erosion of the peso against the US dollar, and ordered an investigation.
The Argentine peso stood at 227 to the dollar at the official exchange rate on Tuesday, but reached more than double that on a commonly used parallel market.
The slide started last week after several days of pressure on the peso in a period of pre-election uncertainty, in a country with exchange controls in place to limit the effects of a financial crisis and rampant inflation of more than 100 percent year-on-year.
Economist Maria Castiglioni told the TN broadcaster that the devaluation was partly the result of Argentines seeking “refuge” in the US dollar to protect their purchasing power.
Massa said the decision to pay in yuan “improves the perspective of Argentina’s net reserves.”
It also “allows us to maintain the level of activity, the volume of imports, the pace of trade between Argentina and China and the levels of economic functioning that Argentina needs” following a poor year for domestic agriculture, and thus exports, amid persistent drought.
The country is experiencing a vicious economic circle. Analysts have said that the rapid depreciation of the peso is in part due to the surprisingly high monthly inflation of 7.7 percent in March, which took the annual rate to 104 percent.
The rapid depreciation of the currency is in turn driving a further surge in prices, leading analysts to predict that next month’s inflation number could reach as high as 10 percent.
“We’re at the cusp of a sort of modern day hyperinflation” that could see annual inflation rate reach 150 percent, said Walter Stoeppelwerth, chief strategist at Gletir Corredor de Bolsa, a brokerage based in neighboring Uruguay.
Additional reporting by AP
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