Argentina expands China currency swap as Beijing eyes Latin America

China has used currency deals, financing for infrastructure projects and other investments to expand its influence in Argentina and across Latin America. (File/AP)
Updated 09 November 2018
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Argentina expands China currency swap as Beijing eyes Latin America

  • The agreement is practically done, minus some formal details to finalize the process: Central Bank President Guido Sandleris
  • Argentina and China first agreed to a currency swap program to boost its dwindling reserves in 2009

Argentina’s central bank said on Thursday it would nearly double its currency swap deal with China, bringing the total to 130 billion yuan ($18.7 billion), as Beijing looks to expand its influence in the recession-struck Latin American country.
Central Bank President Guido Sandleris, who was in China finalizing the agreement, said that the deal for 70 billion yuan would be expanded by 60 billion yuan, according to a bank spokesman.
“The agreement is practically done, minus some formal details to finalize the process,” Sandleris said.
Argentina and China first agreed to a currency swap program to boost its dwindling reserves in 2009 under former President Cristina Fernandez. Last year, under President Mauricio Macri, they agreed to extend the program for three more years.
China has used currency deals, financing for infrastructure projects and other investments to expand its influence in Argentina and across Latin America.
“As the US is looking inward, China is continuing to invest in the region. Between currency swaps and tech investments, China is filling the gap in Latin America,” said Nathan Lustig, managing partner at Magma Partners, a Chilean-based startup investment firm.
The swap agreement comes ahead of the high-profile G20 summit of the world’s major economies to be held in Buenos Aires at the end of November, which Argentina will host.
Argentina’s central bank has approximately $54.25 billion in reserves, after the country firmed up a financing agreement with the International Monetary Fund last month.
Argentina turned to external sources of financing after a bad drought and a run on the peso currency earlier this year sparked investor jitters over whether the country could service its international debts in 2019.
Sandleris assumed the role of central bank president in September after his predecessor unexpectedly resigned amid negotiations to expand the IMF agreement to $56.3 billion, the largest in the fund’s history.
Under Sandleris, the peso has stabilized after the central bank initiated a policy to limit growth in the country’s monetary base. The policy aims to control inflation as the country struggles to pull itself out of recession.
“During the first month of our new monetary policy, we met the goal of zero growth in the monetary base, and we will continue to meet that goal in the coming months,” Sandleris said.
Sandleris added that the impact of the policy on inflation would not be immediate.
Argentina’s inflation in 2018 is forecast at 47.5 percent, according to the latest central bank poll.
The peso has lost almost half of its value against the dollar so far this year.


Lufthansa profit warning spooks European airline sector

Updated 17 June 2019
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Lufthansa profit warning spooks European airline sector

  • Ryanair Chief Executive Michael O’Leary last month warned of the impact of what he called ‘attritional fare wars’

FRANKFURT: Germany’s Lufthansa sent shockwaves through the European airline sector on Monday as it cut its full-year profit forecast, with lower prices and higher fuel costs compounding the effect of losses at its budget subsidiary Eurowings.
The warning follows gloomy comments last month from Irish budget airline Ryanair, which vies with Lufthansa for top spot in Europe in terms of passengers carried. Air France-KLM also reported a widening quarterly loss last month.
In a statement issued late on Sunday, Lufthansa forecast annual EBIT of between €2 billion and €2.4 billion, down from the previously targeted €2.4 billion to €3 billion.
“Yields in the European short-haul market, in particular in the group’s home markets, Germany and Austria, are affected by sustained overcapacities caused by carriers willing to accept significant losses to expand their market share,” it said.
European airlines are locked in a battle for supremacy, with a surfeit of seats holding down revenues and higher fuel costs adding to the pressure. A number of smaller airlines have collapsed over the past two years.
Lufthansa cited falling revenue from its Eurowings budget business as a key reason for the profit warning.
“The group expects the European market to remain challenging at least for the remainder of 2019,” it said.
It also pointed to high jet fuel costs, which it said could exceed last year’s figure by €550 million, despite a recent fall in crude oil prices.
Ryanair Chief Executive Michael O’Leary last month warned of the impact of what he called “attritional fare wars” and said four or five European airlines were likely to emerge as the winners in the sector.
“No signs that anyone is prepared to reduce capacity, therefore we would anticipate the wave of consolidation in European short haul is not over,” said analyst Neil Wilson, analyst at London-based broker market.com.
Earlier this month global airlines slashed a widely watched industry profit forecast by 21 percent as an expanding trade war and higher oil prices compound worries about an overdue industry slowdown.
Lufthansa’s problems are centered on its European business, with a more positive outlook for its long-haul operations, especially on transatlantic and Asian routes.
Eurowings management is due to implement turnaround measures to be presented shortly, Lufthansa said, adding that efforts to reduce costs had so far been slower than expected.
Lufthansa’s adjusted margin for earnings before interest and tax (EBIT) was forecast between 5.5 percent and 6.5 percent, down from 6.5 percent to 8 percent previously, it said in a statement.
Lufthansa also said it would make a €340 million provision for in its first-half accounts, relating to a tax matter in Germany originating in the years between 2001 and 2005.