Argentina wins $50b support programme from IMF
LARGEST RESCUE PACKAGE IN IMF HISTORY COMES AMID AN EMERGING MARKET SELL-OFF
Argentina secured a $50 billion standby arrangement from the International Monetary Fund to help restore investor confidence as the government takes aim at double-digit inflation and a widening budget deficit.
The rescue programme’s size, which would run for 36 months, is the largest ever in IMF history though it will depend on how much the government taps. It comes amid an emerging market sell-off that has shaken developing economies around the world including Brazil, Turkey, Indonesia and Mexico and has forced central banks to hike interest rates.
Officials are worried about the risk of contagion amid rising US interest rates and a strong dollar. With the Federal Reserve tipped to raise rates when it meets this week, central bank governors of India and Indonesia last week called on the Fed to be mindful of its actions.
Hardest hit
Of the economies that have been hit hardest, Argentina tops the list. It has indicated it plans to draw on the first tranche of the programme, after which it will treat the loan as precautionary, the government said.
“The amount we received is 11 times Argentina’s quota, which reflects the international community’s support of Argentina,” Treasury Minister Nicolas Dujovne said in Buenos Aires. “It’s very good news that the integration with the world allows us to ■ receive this support.” Argentina may see 30 per cent of the funds a day or two after the Fund’s June 20 board meeting.
As part of the agreement, the country will now target a fiscal deficit of 1.3 per cent of gross domestic product in 2019 and 2.7 per cent this year. The previous targets were 2.2 per cent and 3.2 per cent, respectively. A new inflation target of 17 per cent is set for 2019.
“This is a plan owned and designed by the Argentine government, one aimed at strengthening the economy for the benefit of all Argentines,” IMF Managing Director Christine Lagarde says in the statement.
Markets will respond positively to the size of the programme as well as the “relatively light” policy demands for this year, according to Stuart Culverhouse, chief economist and head of fixed-income research at Exotix Capital. Still, “delivering the fiscal adjustment and lower inflation next year, an election year, could still prove challenging,” he said.
Argentina’s government was forced into the talks with the Fund last month after three central bank rate hikes pushed borrowing costs above 40 per cent, but failed to halt a plunge in the currency. The peso fell 25 per cent against the dollar this year to trade at 24.9850 on Thursday.
President Mauricio Macri initiated talks with the IMF on May 8 — a decision that could cost Macri crucial votes in next year’s presidential election. The Fund is unpopular in Argentina and blamed by many citizens for the nation’s historic debt default in 2001 and the ensuing economic crisis.