By Jorgelina do Rosario
LONDON (Reuters) -Argentina plans to tap a $7.5 billion disbursement from the International Monetary Fund to repay China part of the money it borrowed through a currency swap line, two sources with direct knowledge of the matter said on Wednesday.
Latin America's third-largest economy recently used $2.8 billion equivalent of yuan to cover just over half of two repayments from a 2018 IMF loan, in order to avoid a default to the multilateral lender.
With net negative foreign exchange reserves of over $8 billion, Argentina is expected to send back as soon as this week the $1.7 billion it used from the swap in July to the People's Bank of China (PBOC), one person said, asking not to be named because the details of the agreement are private. Buenos Aires is not bound to immediately repay the yuan it has previously used in June, the source added.
The plans shed some light on the crucial bridge loan that China extended to Buenos Aires via a currency line established with Argentina more than a decade ago, whose details have remained largely secret.
The cash-strapped economy has used money from the Chinese swap line to pay for imports as well as repay IMF debt.
Accessing yuan to make IMF payments offered a lifeline to Argentina, which is battling an acute scarcity of dollars and is struggling to keep alive its $44 billion program with the Fund.
The swap line that the PBOC signed in 2009 with Buenos Aires was the first agreed with a Latin American country. It has since been renewed and expanded with both leftist and market-friendly governments in Argentina, and now stands at just over $18 billion.
Neither China nor Argentina have released much detail of the swap arrangement or any borrowing under it, so little is known about the currency line signed more than a decade ago.
The IMF's executive board on Wednesday approved two combined reviews of a 2022 loan, which is basically a refinancing line of the failed 2018 program.
This will trigger a $7.5 billion disbursement, which will allow Argentina to also pay back $1 billion to the Development Bank of Latin America, known as CAF, and a $775 million loan from Qatar - which were both also used to pay IMF debt.
"The funds that will be disbursed today go in part to Qatar, to CAF and will lower the level of how much has been used from the swap line. Qatar will be paid in SDRs, China in yuan," a source at Argentina's central bank said, adding he expected the CAF loan to be paid back in U.S. dollars.
The PBOC did not immediately respond to a request from Reuters for comment when it opened for business on Thursday, while a CAF spokesperson did not reply to a request for comment.
Argentina is set to elect a new president in October amid triple-digit inflation and mounting capital controls that have crippled the economy. Uncertainty is high over whether Argentina will keep up payments to the IMF thereafter, or whether it will need - or be able - to tap the swap once again.
The IMF money will provide enough funds to Buenos Aires to pay the IMF's September and October maturities, though a new disbursement is subject to a November review of the programme.
(Reporting by Jorgelina do Rosario, additional reporting by Jorge Otaola and Joe Cash, editing by Karin Strohecker and Sandra Maler)