Argentinian President Alberto Fernandez, on 6 February 2022, had agreed to joining China’s Belt and Road initiative during his visit to Beijing for the opening ceremony of the Winter Olympics. This represents a watershed moment for China in Latin America, as it enables China to make deeper inroads into the region. Argentina may be the 20th of the 33 countries in Latin America to join the Belt and Road Initiative (BRI), but it is the largest Latin American economy to join the initiative.
This is a major setback for the United States as this development happened amidst the US led Western campaign for diplomatic boycott of the Beijing Winter Olympics. Argentina not only attended it at the highest level, but it also entered into an initiative shunned by the West in general. Moreover, by this move, China has deepened its influence in the United States’ own backyard. In return, China extended its support to Argentina’s position on the Falkland Islands. This was a big blow to the United Kingdom as the island is currently under its control. The Falkland Islands are situated close to Argentina, which calls it by the name Malvinas. There was a brief war between Argentina and the United Kingdom in 1982 over control of the islands, in which Argentina attempted to seize the control of the territory from UK, albeit unsuccessfully. Since then, the island has been a major bone of contention between United Kingdom and Argentina.
Argentina finally acceded to the Belt and Road Initiative due to its inability to repay the 44 billion USD debt it had taken from the International Monetary Fund. Argentina also reaffirmed its commitment towards the One China Policy. Fernandez had dropped by Moscow enroute Beijing, to meet Russian President Vladimir Putin and told him that “I am determined that Argentina has to stop being dependent on the fund and the United States, and I believe Russia has an important position”. Argentina’s membership in the Belt and Road Initiative will ensure easier access to funds from the China led Asian Infrastructure Investment Bank (AIIB) and the BRICS New Development Bank.
Argentina’s Trade with China and United States
Argentina has a diversified trade basket and runs a trade surplus with exports exceeding imports by 23 percent, going by 2021 figures. Argentina’s exports are dominated by agricultural products (35.5%), manufactured goods (29.1%) and primary products (26.9%), whereas imports are dominated by intermediary goods (36.9%), capital goods (18.8%) and parts, and the accessories required for capital goods (18.1%). Argentina’s top export destinations are Brazil, China and United States whereas its major import sources are China, Brazil and United States.
Argentina mostly exports soy, corn and beef and is a major competitor for the United States in China and other markets. For China, Argentina serves as an alternative apart from Brazil to United States for importing these commodities in the context of trade wars and growing hostility. Argentina imports telecommunication equipment, vehicles and Vehicles from China whereas from the United States it imports aircraft, machinery and fuel, Argentina’s trade with China has increased manifold over the past few years and is double that of total trade with the United States, and will continue to do so at least for the foreseeable future.
Argentina and the IMF Debt
Argentina has been reeling under the pressure of the conditionalities and austerity measures imposed by the IMF with a debt burden amounting to 44 billion USD inherited from the 2018 IMF agreement made by the previous Mauricio Macri government. This is now coupled with the scourge of COVID-19 pandemic. Despite the pandemic, the Argentinian economy managed to pull off a 10 percent growth last year, contrary to the tepid recovery forecasts by the economists. Apart from this, Argentina also managed to reduce primary deficit by 3.5 percent of GDP. President Fernandez has been in talks with the IMF to relax the conditionalities and austerity measures, and not to impose further conditionalities to sustain the economic recovery. Under the present circumstances, almost all the major economies have rising debts. Developed economies like the United States can manage the debts but developing economies like Argentina cannot cope with the rising debts. Most economists acknowledge the importance of extending fiscal support to the slowing economies in the context of the pandemic, and that is what Argentina wants within the confines of its own resources. Argentina does not want fresh funds, but instead wants to get rid of the austerity measures and conditionalities that comes in the way of its economic recovery or detrimental to the interests of common working class people.
The major goal of the IMF is to provide financial assistance to countries that suffer from balance of payments crisis, but in Argentina’s case, debt servicing to the IMF has been the major risk to its balance of payments. For instance, the IMF required Argentina to tighten its budget by 4. 4 percent of its GDP to restore “market confidence”, but it had the opposite effect leading to the shrinking of the economy. This was followed by further fiscal and monetary tightening by the IMF leading to an increase in poverty of 50 percent. It is in this context that Argentina joined the Belt and Road Initiative, as it is looking for sources of investments in various sectors for reviving its economy and keep up the growth momentum. The Fernandez Government has also secured a deal with the IMF to restructure the 44 billion USD debt.
China’s Relations with Argentina
This year notably marks the 50th year of China-Argentina bilateral relations. In the 21st Century, the relations between China and Argentina advanced rapidly under the tenure of Argentina’s leftist President Cristina Fernandez de Kirchner, who led the country from 2007 to 2015. It coincided with the socialist “pink wave” in Latin America, as well as China’s increased pace of engagement with the region. China had signed a “strategic partnership” agreement with Argentina in 2014, the focus of which has been economic and trade based. Since then, there has been considerable increase in trade as well as China’s investments in Argentina.
The Argentine President announced on twitter that joining the BRI project would entail investments amounting to 23 billion USD, a figure interestingly not mentioned in any of China’s statements. The 23-billion-dollar investments comprise of investments that have already been announced and the work for which are in different stages of progress, as well as investments that are yet to be announced. Prior to Fernandez’s visit to China, Argentine nuclear power plant operator Nucleoelectrica Argentina and China National Nuclear Corporation (CNNC) reached an agreement to build the country’s fourth and largest nuclear power plant Atucha 111 near Buenos Aires. The project was under discussion since the tenure of Christina Fernandez, and the value of the investment is estimated to be around 8 billion USD to be financed mostly by Chinese banks. The previous three nuclear power plants in the country were built using German as well as Canadian technology.
Apart from this, China also has invested in the solar, hydel and wind energy sectors in Argentina. The China Electric Power Equipment and Technology company had announced the upgradation and expansion of the Buenos Aires power grid at an estimated 1.1 billion USD earlier this year. Another interesting fact to be noted is that the spot price of Lithium went up to 3,15,000 USD after Argentina joined BRI, which is four times higher than its price a year ago. Lithium is an important mineral which is used in making batteries for Electric Vehicles, which will play a crucial role in the climate mitigation strategies of various countries. Argentina is situated in that part of the world which is in possession of more than half of the Lithium reserves in world – the Lithium triangle at the trijunction of Argentina, Chile and Bolivia. China is the biggest investor in Lithium mines and is engaged in refining two thirds of the world’s Lithium supply. Argentina, with around 10 percent of global Lithium reserves becoming part of BRI also means China securing supplies of this crucial mineral. However, the relationship between China and Argentina has not been without hiccups. The disputes over China’s fishing vessels on Argentina’s Exclusive Economic zone has constantly created tensions between both the countries. Nevertheless, this has not been a major roadblock in deepening financial relations between China and Argentina, if one chooses to look at it in a broad manner.
Geopolitical Implications
The agreement can have huge geopolitical fallout as China is deepening its engagement in a region which is the “backyard” of the superpower hegemon in the region, the United States. The agreement is a big diplomatic setback for the United States, especially when it is confronting China’s power projection in the Indo-Pacific and Russia’s aggressive moves in Europe. A section of analysts also views this as China’s retaliation to United States’ actions in China’s immediate neighbourhood such as the South China Sea and Taiwan. China also offered support to Argentina’s position in the Falklands/Malvinas Islands as a response to the United States and UK criticizing China’s actions in Hong Kong, which was returned from UK, and the South China Sea. Liz Truss, who is the secretary of state for Foreign, Commonwealth and Development Affairs of the United Kingdom tweeted that no one could question the sovereignty of Falkland Island and that the Island is part of the ‘British family’. Chen Weihua, who is a journalist with the state-run China Daily newspaper of China responded that whether “it’s okay for UK to challenge China’s sovereignty in the South China sea by sending naval vessels”.
It can be concluded here that Argentina might benefit from the Chinese investments in terms of reviving Argentina’s economy in the short run. However, in the long run, there could be potential pitfalls in the form of environmental degradation or the issues concerning the “debt trap” suffered by other BRI partners which Argentina may have to carefully navigate. Nevertheless, China has delivered an Atlantic challenge to the Indo-Pacific moves of the US for the past one decade.
Disclaimer: The views expressed in the article are personal.
Sharad Joseph Mahendar is a Masters student at the Department of Geopolitics and International Relations, Manipal Academy of Higher Education.
