China challenges IMF as emergency lender

China is stepping up its role as the lender of last resort to some of the world's most financially strapped countries.

Chinese officials signaled on the weekend they are willing to expand a $24 billion currency swap program to help Russia weather the worst economic crisis since the 1998 default. China has provided $2.3 billion in funds to Argentina since October as part of a currency swap and last month it lent $4 billion to Venezuela, whose reserves cover just two years of debt payments.

By lending to nations shut out of overseas capital markets, Chinese President Xi Jinping is bolstering the country's influence in the global economy and cutting into the International Monetary Fund's status as the go-to financier for governments in financial distress. While the IMF tends to demand reforms aimed at stabilizing a country's economy in exchange for loans, analysts speculate that China's terms are more focused on securing its interests in the resource-rich countries.

"It's always good to have IOUs in the back of your pocket," the chief investment officer at Kolding, Denmark-based Global Evolution A/S, Morten Bugge, who helps manage about $2 billion of emerging-market debt, said.

"These are China's fellow friends and comrades, and to secure long-term energy could be one of the motivations," he said.

The ruble jumped 4.9 percent to 55.8 per dollar in Moscow on Monday after Hong Kong-based Phoenix TV cited China's Commerce Minister Gao Hucheng as saying that expanding the currency swap between the two nations would help Russia.

The ruble has gained 10 percent over the past two days, paring a sell off that's made it the world's worst performing currency over the past six months.

Unlike Ukraine, where the pro-west government received a $17 billion IMF-led bailout this year, Russia, Argentina and Venezuela are often at odds with the U.S. and its allies, essentially keeping them out of the reach of the Washington-based institution. At $3.89 trillion, China holds the world's largest foreign-exchange reserves, allowing it to fill the void.

China and Russia signed a three-year currency-swap line of 150 billion yuan ($24 billion) in October, a contract that allows Russia to borrow the yuan and lend the ruble. While the offer won't relieve the main sources of pressure on the ruble - which has lost 41 percent this year amid plunging oil prices and sanctions linked to Russia's annexation of Crimea - it could bolster investors' confidence in the country and help stem capital outflows.

Two phone calls to China's central bank seeking comment on the terms of its currency swaps weren't returned. Russia isn't in talks with China about any financial aid, Dmitry Peskov, a spokesman for President Vladimir Putin, said recently.

Funding from China has helped raise Argentina's foreign reserves to a 13-month high of $30.9 billion, a boost for a country that has been kept out of international capital markets since defaulting on foreign

obligations in 2001.

Argentina received $1 billion worth of yuan earlier this month as part of the three-year currency-swap agreement with China, a central bank official in the South American country, who asked not to be identified because he isn't authorised to speak publicly, said recently. That extended the funds transfered to Argentina to $2.3 billion since October. The swap is for a maximum of $11 billion over three years.

In Venezuela, President Nicolas Maduro last month added $4 billion he borrowed from China to the country's reserves after they fell to an 11-year low. The country now has about $21 billion in its coffers, equal to the amount of debt it has coming due in 2015 and 2016.

Venezuela, which was already plagued by shortages of everything from toilet paper to toothpaste, is also suffering from the drop in oil, its biggest export. Traders are betting that there's an 89 percent probability that Venezuela won't make good on its debts over the next five years, according to credit-default swaps data compiled by Bloomberg.

"I don't think this is a broad policy to support any country that asks for Chinese help," Steffen Reichold, an economist at Stone Harbor Investment Partners in New York, said in an e-mail. "Several countries are in a tight spot and the Chinese are offering to help. That buys them some goodwill and influence, and promotes the use of the yuan."

- Bloomberg