Milei needs pragmatic China policy
Argentina’s incoming leader cannot afford frosty ties with Beijing amid deep economic woes
Argentine President-elect Javier Milei’s economic and social policy proposals, as well as his stance on China, have been in the international spotlight ever since he unexpectedly secured the highest vote share during the election.
Many of his policy proposals deviate significantly from conventional norms, and his unfriendly remarks toward China during the campaign have added to the interest.
First and foremost, we must acknowledge a fact: Milei, almost a “political outsider”, emerged as a formidable contender in this year’s presidential election, decisively defeating a politically entrenched opponent, because Argentina’s economy is mired in its most severe crisis in nearly 20 years.
Economists suggest the annual rate of inflation in Argentina is expected to average 147 percent in 2023, and the country’s GDP could fall by 3.0-3.5 percent this year, amid high unemployment rate, a significant devaluation of the peso against the dollar, and a looming external debt crisis.
Faced with the loss of confidence in traditional political parties and politicians, a large portion of voters turned to the unconventional politician and his unconventional policy proposals.
A closer look at Milei’s economic and social policy proposals, including substantial tax cuts, reduction of welfare expenditures, and dollarization have gained support from a significant number of voters.
But undoubtedly, for most observers, such policy proposals as abolishing the Argentine peso and adopting the US dollar are unrealistic. Establishing a stable and reliable national currency, while maintaining currency sovereignty, is undoubtedly the best option. However, some countries have occasionally faced significant challenges due to their domestic weaknesses, and people turn to foreign currencies instead.
In some countries and regions the US dollar is popular. As China’s comprehensive national strength rises and the internationalization of the renminbi progresses, the renminbi can also become a “suboptimal choice” for more countries.
Argentina signed a currency swap framework agreement with China in 2009, equivalent to 70 billion yuan ($9.8 billion). The currency agreement has been renewed several times. And now the swap comprises the exchange of currency for reinforcement of international reserves of 130 billion yuan and a special activation of 35 billion yuan in January 2023 to compensate operations on the foreign exchange market.
If Milei, after taking office, indeed decides to resolve the peso crisis, the existing currency swap agreement with China will play a crucial supportive role.
As for the prospects of China-Argentina relations under Milei’s leadership, the two countries have highly complementary resource endowments and industrial structures. China is Argentina’s second-largest trading partner and the largest market for agricultural product exports. “Made in China” provides a choice of finished products and help to curb the current severe inflation.
All these objective economic fundamentals indicate enormous potential for economic cooperation between the two sides. Not to mention that Argentina urgently needs China’s cooperation and support in dealing with its current external debt and international liquidity crisis. Recognizing these facts, there is no need to be overly pessimistic about China-Argentina relations.
Since being elected, Milei has displayed a pragmatic stance toward China-Argentina relations. As stated by Chinese Foreign Ministry spokesperson Mao Ning, there seem to be discrepancies in the statements made by Milei’s foreign affairs advisor Diana Mondino in regard to China-Argentina relations. In an interview published on the RIA website, Mondino clarified that there is a misunderstanding about President-elect Milei’s foreign policy.
No country can afford to sever diplomatic relations to develop economic and trade cooperation, and it would be a serious mistake for Argentina’s diplomacy to cut ties with major countries like China or Brazil. Given that China is an essential trading partner for Argentina, the elected government may place importance on Sino-Argentine relations, especially in terms of economic and trade cooperation.
Given this, let us stay composed and observant on the issue of economic, trade, and political exchanges with Argentina.