Xi Flies to Argentina With $7.5 Billion in Tow

Chinese President Xi Jinping arrived in Argentina today to sign trade and investment agreements for at least $7.5 billion to develop energy and transport infrastructure projects.

Xi met with President Cristina Fernandez de Kirchner at the presidential palace in Buenos Aires to sign 19 agreements. Argentina’s Cabinet Chief Jorge Capitanich told reporters earlier today the contracts to be signed include financing from Chinese banks for $4.7 billion for two hydroelectric projects to be built in Santa Cruz province by a consortium led by China Gezhouba Group Ltd. (600068)

Securing loans with its third-biggest trading partner gives Argentina some respite at a time its reserves are near an eight-year low and it faces the prospect of second default in 13 years. Argentina has until July 30 to settle with creditors including billionaire Paul Singer’s Elliott Management Corp. or risk a default on its performing bonds.

“Argentina is in a beggar’s position,” said Kevin Gallagher, a professor of international relations at Boston University. “They need the foreign reserves and they need the FDI and China is the only country outside of the orbit of the U.S. court decision that is willing to put money on the table.”

The two dams to be built over five and half years in the south of the country will have electricity generation capacity of 1,740 megawatts and be financed by loans from the China Development Bank Corp, Industrial and Commercial Bank of China Ltd and Bank of China Ltd.

Reserves Swap

Argentina and China, the world’s second-largest economy, will also sign an agreement to swap as much as $11 billion in their two currencies during a three-year renewable period. The countries will also sign a loan for improvements in the Belgrano rail line worth $2.1 billion and a nuclear energy cooperation accord.

Xi will attend a dinner with Fernandez tonight and meet with the heads of both chambers of Congress tomorrow before receiving the keys to Buenos Aires from mayor Mauricio Macri, according to presidential palace officials.

Xi’s arrival follows a visit to Brazil, where China pledged more than $8.6 billion in investments and loans while backing the creation of a $50 billion development bank.

Argentine central bank foreign reserves have fallen 21 percent in the past year to $29.7 billion as Fernandez uses the funds to pay foreign debt obligations. A decade of lawsuits over defaulted debt has pushed up Argentina’s borrowing costs, effectively locking the country out of capital markets.

Soybean Exports

Argentina is seeking to increase electricity production as energy imports deplete reserves. The country posted a record energy deficit of $6.1 billion in 2013 or about half of the total fall in reserves.

China is adding food to its strategy of importing oil and metals to feed one of the fastest-growing economies in the world, Gallagher said. Argentina, the third-biggest producer of soybeans in the world, is expecting a record harvest this year of 55.5 million tons of soy. China is the world’s biggest soybean importer.

China increased direct investment in agricultural projects in Latin America from 2010 to make it one of its principal categories for FDI, according to a report by Boston University’s Global Economic Governance Initiative.

“This visit will reinforce our strategic commercial alliance,” Capitanich said. “Despite having a deficit in our commercial trade, the volume of Argentine exports to China makes this relationship a priority for Argentina’s future development.”

To contact the reporters on this story: Pablo Gonzalez in Buenos Aires at pgonzalez49@bloomberg.net; Charlie Devereux in Buenos Aires at cdevereux3@bloomberg.net

To contact the editors responsible for this story: Philip Sanders at psanders@bloomberg.net Randall Woods, Daniel Cancel

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