Home News Does a Pro-Western Argentina Under Javier Milei Necessarily Threaten Its Economic Relationship with China?

Does a Pro-Western Argentina Under Javier Milei Necessarily Threaten Its Economic Relationship with China?

by internationalbanker

By Valerie Hernandez, International Banker

 

After taking office on December 10, President Javier Gerardo Milei wasted no time in reversing the plan of the previous administration under Alberto Fernández to take Argentina into the powerful BRICS (Brazil, Russia, India, China and South Africa) economic group of rising emerging economies, informing the bloc’s leaders less than three weeks later that it was not an “opportune” moment for Argentina to become a full member. With the rabidly pro-Western Milei now at Argentina’s helm, much of the goodwill that Buenos Aires had been steadily amassing with Beijing under his predecessor now looks in danger of being significantly decimated. But with the Argentine economy in a hugely desperate situation today, can the new Milei regime afford to be so cavalier with its second-biggest trading partner?

A public persona very much in the mould of populist firebrand presidents Donald Trump of the United States and Jair Bolsonaroof Brazil, Milei swept to power on a raft of radical policy proposals that included permanently shuttering the central bank and fully dollarising the Argentine economy. He also made clear his staunch geopolitical alignment with the West during his election campaign, with considerable support shown for the United States and Israel in particular. His campaign rhetoric towards China, on the other hand, was markedly more hostile, with declarations issued on several occasions that he would not “negotiate” or “do business” with “communists”, that the government in Beijing is an “assassin” and that Chinese people are “not free”. Milei even pledged to freeze relations with China at one point.

Clearly, such views stand in stark contrast to those espoused by Milei’s predecessor, Alberto Fernández, who sought much closer economic cooperation with Beijing. This was evidenced by Argentina’s application (successfully approved in August 2023) to join BRICS on January 1, 2024, which Milei has since stymied. Fernández also joined China’s hugely ambitious Belt and Road Initiative (BRI) in 2022, whilst his attendance at the Beijing 2022 Winter Olympics and the Belt and Road Forum for International Cooperation (BRFIC) signalled his desire for warmer relations between Buenos Aires and Beijing.

On December 21, Argentina avoided accessing funds from the $18-billion currency swap line that had been agreed with China when fulfilling its scheduled debt repayment to the International Monetary Fund (IMF) under its $44-billion loan deal and instead turned to financial assistance that mostly came from the CAF Development Bank of Latin America and the Caribbean. This was a major shift from its October repayment obligations under the previous administration, which did not hesitate to tap the swap line to help cover the $2.6 billion that Argentina owed in so-called special drawing rights (SDRs).

That said, the Argentinian media did report that Beijing had frozen a $6.5-billion reinforcement of the currency swap amid rising tensions with Milei, with news outlets citing unnamed sources from the Fernández administration confirming the veracity of a report by US agency REDD Intelligence that an extension of the existing currency swap had been put on ice while China awaited positive signals from the new administration over the future of bilateral ties. “It was halted while awaiting fraternity gestures,” unnamed sources told Argentine tabloid Perfil. Nonetheless, Beijing’s freezing of the funds further highlighted the increasing fractiousness on both sides of the relationship.

So, it would seem that all is lost, then? Far from it. Indeed, Milei received a note of congratulations for his election victory from his Chinese counterpart, President Xi Jinping, while China’s government has sought to present a positive view of relations between the countries. “China and Argentina are both major developing countries and important emerging economies. The two countries are comprehensive strategic partners, and our bilateral relations are in good shape,” a Ministry of Foreign Affairs spokesperson, Mao Ning, stated on December 13. “China values the growth of its relations with Argentina from a strategic and long-term perspective. We stand ready to work with the new government of Argentina for the sustained and steady development of the China-Argentina comprehensive strategic partnership.”

Evidence also suggests that Milei has softened his stance on China since taking office. “I thank President Xi Jinping for the congratulations and good wishes,” Milei said on his X account. “I send him my most sincere wishes for the Chinese people’s wellbeing.” The new president was also reported to have held a low-key meeting with a senior Beijing envoy soon after taking office, while Minister of Foreign Affairs Diana Mondino sought to calm nerves in a December 2 interview with Reuters in which she stressed that Argentina would not cut ties with China but would instead seek to boost private trade between the two countries. “The private sector is the one that makes the deals,” she said, adding that Argentina wanted to “export as much as possible to everyone”. The new government was also keen to overturn its trade deficits, Mondino added, including with China. “We have a lot of debt… so we need a positive surplus.”

Mondino also met with Chinese Ambassador Wang Wei in January to smooth ties further, with both parties reiterating the importance of the Comprehensive Strategic Partnership signed by the two countries 10 years ago. “There is no doubt about the importance of the commercial exchange between both countries, China being the second Argentine commercial partner, the second destination of our exports, and the first origin of imports in the country,” Mondino explained after the meeting.

And if any further evidence was needed that Milei has undergone a reality check after entering office, his April 4 interview with Bloomberg provides just that: “We have always said that we are libertarians,” Milei told Editor-in-Chief John Micklethwait. “If people want to do business with China, they can.”

Indeed, many hope that Milei’s bark is worse than his bite and that the strong anti-China positions that emerged during his election campaign were merely issued to rouse his right-wing nationalist base of supporters. Simply put, Argentina has nowhere near enough wiggle room to aggravate its biggest trading partner after neighbouring Brazil; the top buyer of key Argentine exports, including soybeans and beef; a major investor in Argentina’s fledgling lithium industry; and the provider of the aforementioned $18-billion currency swap, a credit lifeline amid dwindling currency reserves and the biggest yuan swap line in the world. This is especially the case when the country’s inflation sits above 250 percent, a whopping 57 percent of the population falls below the poverty line (as of January) and a potentially deep and prolonged recession appears increasingly visible on the horizon.

With China as the principal trading partner of the wider South American continent and commanding significant influence via its extensive investments in the region—particularly via the BRI, which currently has 21 Latin American nation signatories—it seems foolish in the extreme to abandon such enormous potential economic gains in favour of such stubborn ideology. As such, the moderation of Milei’s attitude towards China has been “as predictable as the chimichurri that shows up at your table after your bife de chorizo,” Benjamin Gedan, director of the Latin America Program at the Wilson Center, asserted in December. “Argentina’s economy is in a shambles, and it can scarcely afford to lose access to its most important export market and principal source of hard currency.”

As for Milei’s BRICS exit, the decision to throw away such a golden opportunity to boost trade activity and alleviate Argentina’s economic pain could be devastating. “I wouldn’t really describe Argentina’s decision as a setback for BRICS or China—it’s a setback for Argentina,” Josef Gregory Mahoney, a politics and international relations professor at East China Normal University in Shanghai, told the South China Morning Post (SCMP) on January 7. “Given the poor state of the Argentine economy and the damage that’s being done to it by Milei’s economic policies, his withdrawal is a blessing in disguise for the other BRICS members—they’ve dodged a bullet.”

Chi Zhang, an associate lecturer of international relations at the School of International Relations at the University of St Andrews, meanwhile, views Milei’s rejection of BRICS as part of the mounting pressures on developing countries to choose between the US-led world order and alternative economic systems. “In the short term, Argentina’s decision to pivot towards the West and align with the US, despite receiving goodwill from Chinese President Xi Jinping, may lead to a decrease in diplomatic and economic engagement with China,” Zhang explained to the SCMP. “In the long term, if other Latin American countries follow Argentina’s lead in re-evaluating their involvement in BRICS, where China plays a major role, it could potentially weaken the bloc’s regional economic influence and undermine China’s growing influence in Latin America.”

Ultimately, it seems that Milei’s Argentina will have no choice but to continue dialling back its anti-China bombast if it wants to escape its deepening economic hole sooner rather than later. “Milei will not sever ties with China,” Jorge Heine, research professor at Boston University’s Frederick S. Pardee School of Global Studies and interim director of the Frederick S. Pardee Center for the Study of the Longer-Range Future, wrote in Latin America Advisor, a daily publication of the Inter-American Dialogue (IAD), a Washington, DC-based think tank.

“Milei is caught between a rock and a hard place. He needs the United States to help renegotiate its $45 billion debt to the IMF, which Argentina can’t pay. Yet, he also needs the Chinese market,” Heine noted. “Whereas the Argentine and the Chinese economy are complementary, the Argentine and the US economy are not. The United States will not buy soybeans, meat or grains from Argentina, and neither will Israel. Either Milei accepts this hard reality, or his government will start teetering from the word go.”

 

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