Fact Check: Argentina

906 days, 20 hours, 44 minutes ago

SINCE RUFO EXPIRED

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The Plump “Skinny” on Argentina-China Accord

CFK Compelled to Insure the Loan from China

Now that Argentine President Cristina Fernández de Kirchner has pulled up stakes, and folded the tent on her diplomatic carnival – departing Beijing with what has been reported as either 15 signed agreements or 22 such “cooperation deals” – we thought it important to delve a bit deeper into the details, see exactly what we are able to glean from the little information that has so far been made public.

Just a few of the questions that guide our investigative efforts:

 – How lopsided, and truly China-centric, are these deals?

– What will be their long-term effects on the Argentine economy and its labor-force?

– How much Argentine sovereignty is Kirchner willing to cede?

– To what extent does Kirchner pawn the Republic’s vast natural treasures?

– What is the exact nature and extent of the “cash” Argentina will receive?

We expect this examination to be an ongoing process, one that builds now upon the historical endeavors of this blog, and that will also surely occupy ample space in future posts.

For certain, though, we are now able to decipher more clearly the meaning of La Nacion’s claim that Kirchner is “open to all kinds of concessions,” in her haste to “consecrate” China as Argentina’s “greatest ally.”

Yes, “unlike the Western powers and foreign banks that refuse to give credits,” thanks to Kirchner’s decision to default on her loan obligations, and her steadfast refusal to negotiate with her creditors, “it is key that China has fresh funds and is willing to lend at a subsidized rate.”

But, at what cost to the Argentine people?

When El Cronista reports that Finance Minister, Axel Kicillof, declares “the yuan is a reserve currency for Argentina,” inquiring minds can be excused their heightened curiosity…and their determination to learn all there is to learn about this “comprehensive strategic partnership” that features “agreements of cooperation in criminal matters, tourism, culture, health, science, mining, nuclear, communications, space activities, information systems, peaceful use of nuclear technology and financing.”

The Chamber of Exporters of Argentina was quick to join other Argentine interests who’ve criticized the accord in the past, requesting yesterday that the House of Deputies conduct a public hearing on the accord…

In an official statement, the Chamber warned that the agreement would have “a severe impact on employment and industrial development…”and would generate “asymmetries” and important “inequalities”.

Of the multiple agreements reached yesterday, La Nacion reports further:  “With the agreements in place, China will have the facilities for investments with direct awards.  In addition, it will build a space observation base in Neuquén to put three astronauts on the moon in 2016 with tax exemptions for 50 years.”

And, there seems to end much of the “detail” as reported in the news these last few days…

But, readers of this blog are aware that Kirchner’s China strategy is an ambitious beast, with multiple initiatives apparently in the works, very much including the Hydroelectric projects in Santa Cruz, as well as the Belgrano freight rail projects.

For these two initiatives at least, the paper trail is readily available to those who seek it…

A few of the highlights:

 – So as to deter Argentina’s well-known debt-shenanigans, China has established a “credit facility agreement.”  This is an insurance policy that will protect the loan principal and interest (up to 95%) that is being extended to Argentina.

– The credit facility agreement is being handled by the “Sinosure,” or China’s state-owned China Export & Credit Insurance Policy.

– Sinosure is insuring the Hydro-electric loan, for a premium of 7.1% of the credit contract, 30% of which will be paid during the first month after the loan payment is advanced, and the rest in 4 equal payments over the next 48 months.  Also, the payments on this loan are supposed to be paid out of the Hydro plant’s revenues.

– Sinosure is apparently well aware of the “historical debts” of Argentina, and thus the loan has been structured with a “contingency mechanism” to protect against any blowback from these debts.

– China’s exposure is further limited by a structure that stipulates much of the infrastructure is paid for up front, even as the disbursements under the credit facility are triggered incrementally.

This past July (2014), China and Argentina set up an organization called, “Mecanismo de Diálogo Estratégico para la Cooperación y la Coordinación Económica entre Argentina y China”, or, the “Strategic Dialogue Mechanism for Economic Cooperation and Coordination between Argentina and China”.

The purpose of this body is to focus on an extensive and dynamic agenda of trade and investment matters, and to create a high-level channel between the two countries to identify, promote and implement priority projects for development in areas such as energy, infrastructure, transportation, manufacturing, telecommunications, mining, agriculture, ranching, fishing and finance.

The Hydroelectric projects in Santa Cruz, and the Belgrano freight rail projects seem to be the two that are closest to implementation.  Both have been in the works for some time, although press reports differ on the exact date of their conception…the Belgrano contract was, according to some press reports, signed in 2010.  Still, other media also consistently report that the contract was signed last July, during Chinese President Xi’s visit to Argentina.

Although this is exactly the sort of opacity that we’ve come to expect from the Argentina-China accord, it may be that the credit facility for this project was signed in July, while the construction contract was signed in 2010.

This past September (2014), Bank of China disbursed what the press described as “the first USD $370 Million for the Belgrano Cargas project.”  Argentina’s national news agency, Telam, touted this investment as a sign that China was pursuing its strategic investment program in Argentina despite its voluntary default.

At that time, a Chinese official, Xu Shaoshi, was quoted as saying “what happens in the rest of the world will not affect the decision to go on collaborating and working with Argentina, because we have a strategic association.”  He also said he was confident that Argentina would find a “fair” solution to its conflicts with its creditors.

The first half billion or so for the Hydro project was going to be disbursed during CFK’s planned trip to China in November, 2014.  Of course, neither the trip, nor the payment happened at that time.

It was Kirchner’s hope, reportedly, that this first payment would be unlocked during this current trip, but we’ve encountered no news on its disposition.

News reports and publicly available information this blog has been able to peruse allows us to identify the following entities associated with both these projects:

Belgrano Cargas:

 – China Development Bank Corporation

– Industrial and Commercial Bank of China Ltd.

– China Machinery Engineering Corporation (CMEC)

 Hydro Projects:

 – China Development Bank Corporation

– Industrial and Commercial Bank of China Ltd.

– Bank of China Ltd.

– Gezhouba Group

– Electroingenieria S.A.

– Hidrocuyo S.A.
(these latter two are Argentine companies who were part of the winning consortium to carry out this project)

Stay tuned.  We will continue our examination of the Argentina-China accord, and will report all fresh developments here.