IMF approves $56.3bn Argentina financing deal
The IMF’s executive board approved a $56.3bn credit line for Argentina, clearing the way for the embattled economy to receive a larger amount of funding at a faster pace than originally negotiated.
The board’s sign-off on Friday ratified a revised agreement announced in September. Under the new deal, Argentina will receive about $35.8bn throughout the remainder of 2018 and all of 2019, representing nearly a $19bn increase from the original arrangement negotiated in June. It already received $15bn in June. The remainder of the funds are slated for 2020 and 2021.
South America’s secondlargest economy has been battered by a plunge in its currency, surging inflation and prospects of back-to-back years of recession. In exchange for the funds, Argentine President Mauricio Macri has pledged to balance the government budget in 2019, a year earlier than previously expected. That will be no small task for policy makers targeting a fiscal deficit of 2.6% of GDP in 2018, and some analysts said that much austerity could risk Macri’s re-election chances.
Under the revised agreement, all of the funds will be dispersed by the IMF, and each installment will be subject to the board’s approval. The frontloaded payment all but guarantees Argentina will not have to tap global capital markets until after the 2019 election, which may alleviate concerns about a fiscal deficit. The deal has also revamped Argentina’s monetary policy. The central bank implemented a currency band, allowing the peso to float between 34 to 44 pesos to the US dollar.
The bank is also conducting daily sales of seven-day notes to remove excess cash in the market to tackle inflation.
Critics in Argentina blame the IMF for its role in the nation’s 2001 default and argue the new deal is terrible, while possible contenders for the 2019 election are already saying the next government should renegotiate it.
Still, there are signs the agreement has halted a slide in investor confidence. The peso is up more than 12% in October, on pace for its best month since 2003. The yield on the government’s 100-year bond is down from its peak in early September. The difference in yield between Argentine bonds and 10-year US Treasury notes has also come down over the same period.