Argentine & Venezuelan Deadbeats' Paymaster, China

♠ Posted by Emmanuel in , at 12/17/2014 01:30:00 AM
Oh boy, oh boy. It is no big secret that the new Latin Left abhors the United States. For a long time now, China has been on hand to buy the loyalties of these countries in a geopolitical tug-of-war that's largely unspoken. Call it the "new" Cold War. With America the target of opprobrium the world over, it isn't exactly hard to find these sorts. Today's case in point are our favorite anarcho-economies, Argentina and Venezuela. Largely shunned by international credit markets, these nations have had to turn to China to shore up their funding as of late.

First up is Argentina, which has had a swap arrangement in place with China since midyear. Since it's frozen out of Western capital markets--the recent default didn't help--this one was coming along for quite some time:
Argentina’s central bank tapped a currency swap line with its Chinese counterpart for the first time Thursday, requesting the equivalent of about $814 million at a time when its hard currency reserves are under pressure. Argentina and China agreed to the 70 billion yuan currency swap during a state visit by Chinese President Xi Jinping in July. Argentine officials say the agreement will make it easier for Chinese companies to invest in Argentina and strengthen the central bank’s depleted reserves.

“Under this agreement, the central bank could request additional currency exchanges equivalent to a maximum of $11 billion,” the bank said in a statement Thursday. The three-year currency swap allows the two central banks to lend as much as 70 billion yuan and the equivalent in Argentine pesos to each other for up to 12 months. China is Argentina’s No. 2 trade partner after neighboring Brazil.
In the overall scheme of things, $814 million isn't that much, but hey, every little helps in a recessionary economy. Speaking of which, the China has lent far larger sums to Venezuela in an oil-for-cash deal. To no one's real surprise, the Chinese have had to relax credit terms because of this other deadbeat's inability to pay. Venezuela's financial situation is deteriorating further as oil prices sink. Why does China persist with a losing proposition? Some commentators suggest it is too invested in Venezuelan energy to allow a wholesale collapse. Sunk costs and all that...
South America’s most economically troubled country, facing fears of a debt default amid tumbling oil prices and a cash crunch, has been thrown a lifeline by its largest lender, China. The Asian giant loosened repayment terms on the nearly $50 billion in loans it has granted Venezuela since 2007, according to Venezuela’s Official Gazette. And President Nicol├ís Maduro said in a speech last week that his finance minister, Rodolfo Marco, would soon travel to China to try to secure new loans...
Last week the president used a $4 billion Chinese credit, traditionally earmarked by the Chinese government for infrastructure projects and held in off-budget funds, to increase reserves to $23.2 billion. China also recently lent $1.3 billion to help Argentina buoy falling reserves, giving President Cristina Kirchner , a close ally of Mr. Maduro, a cushion to help alleviate that country’s cash crunch.
Beijing’s largess may appear irrational given economic policies in Venezuela and Argentina that do not appear sustainable, said Barbara Kotschwar, a scholar who tracks Chinese investment in Latin America at the Peterson Institute for International Economics in Washington. “On the other hand,” Ms. Kotschwar said, “they are so invested in Venezuela’s oil industry that they may have calculated that a political crisis would have a negative impact on their return on investment or on Venezuela’s repayment of loans.”
Let's just say the de jure Chinese socialists are as much in trouble as are the de facto Latin socialists. In the end, they all deserve each other.