IMF and Argentina agree to accelerate $50bn loan deal as currency struggles
Argentina and the International Monetary Fund agreed to work on speeding up the disbursement of funding to Latin America’s second-largest economy from a $50 billion loan provided by the Washington lender, as the country’s currency continued to come under pressure.
“In consideration of the more adverse international market conditions, which had not been fully anticipated in the original programme with Argentina, the authorities will be working to revise the government’s economic plan,” said Christine Lagarde, the IMF’s managing director.
“[The focus will be] on better insulating Argentina from the recent shifts in global financial markets, including through stronger monetary and fiscal policies and a deepening of efforts to support the most vulnerable in society,”
In June of this year, the IMF approved a $50bn line of credit for Argentina, which has been marred by debt defaults, a recession and an erosion in the value of its currency, the peso. In the wake of Turkey’s ongoing financial crisis, which led to a sell-off in emerging markets the peso tumbled to a record low against the US dollar.
Turkey’s lira has lost about 40 per cent of its value against the dollar this year because of economic imbalances in the country and a sell-off accelerated by a row with Washington over an American evangelical Christian pastor detained by Ankara on terrorism charges.
The lira began to weaken rapidly amid concerns over Turkish President Recep Tayyip Erdogan’s influence on monetary policy, but was driven to record lows over the dispute with the US, as Washington slapped tariffs on some Turkish imports.
“After being embroiled in a dispute with the US, concerns were raised at the dramatic drop of the lira and Turkish stocks as it was hit with sanctions,” said Mihir Kapadia, chief executive of Sun Global Investments.
“This saw other emerging markets suffer, with Argentina’s peso the biggest victim of Turkey’s plight.”
On Thursday, Argentina’s currency plunged 7 per cent despite the country’s central bank intervening to try and stabilise the peso, which closed at 34.10 to the dollar.
“President [Mauricio] Macri and I had a productive conversation today. He indicated his desire to work toward strengthening the policies underpinning the standby arrangement with the IMF,” Ms Lagarde said.
“I have instructed IMF staff to work with the Argentine authorities to strengthen the fund-supported arrangement and to reexamine the phasing of the financial programme. I have agreed that we would aim to reach a rapid conclusion of these discussions.”
Inflation in Argentina is forecast at about 23 per cent this year from about 26 per cent in 2017, while the economy is projected to decelerate to 2 per cent in 2018 from nearly 3 per cent a year earlier, according to the IMF
Argentina’s government, which has maintained large fiscal deficits over the past several years, pledged as part of its agreement with the IMF in June to keep debt at a sustainable level, reduce inflation, spur economic growth and job creation, while reducing poverty.