Argentina and IMF reach deal for $57b to halt slide of peso

NEW YORK/BUENOS AIRES — The International Monetary Fund on Wednesday increased its three-year lending program with Argentina by $7 billion to $57 billion, on the condition that the central bank halted fullscale interventions to support the ailing peso.

IMF Managing Director Christine Lagarde, speaking at a news conference in New York alongside Argentine Economy Minister Nicolas Dujovne, said the Fund was “significantly frontloading” disbursements under the program. It will boost the financing available through the end of next year by $19 billion, she said, adding that the aim of the program was to help Argentina “tackle the challenges it faces” and support the “most vulnerable people in society”.

Argentina has been at the center of emerging market turmoil this year after a drought plunged Latin America’s third-largest economy into recession.

Investor fears that Argentina would not be able to service its foreign debt in 2019 have made the peso one of the world’s worst performing currencies this year. It has lost more than 50 percent of its value in 2018.

Lagarde said that Argentina’s central bank had agreed as part of the deal to allow the peso currency to float freely and would only intervene in the foreign exchange market in extreme circumstances.

The central bank has spent nearly $16 billion in reserves this year in a failed attempt to prop up the peso, using a large share of the dollars disbursed by the IMF so far.

Speaking at a later news conference in Buenos Aires, Argentina’s new central bank governor, Guido Sandleris, said the bank would establish a trading band for the peso and only intervene in the market if it fell outside that range.

Sandleris, appointed on Tuesday after his predecessor unexpectedly resigned, said the range will initially be set at 34 to 44 pesos to the US dollar. It will depreciate daily at a rate equivalent to 3 percent per month, he said.

Any intervention in the market outside that range would be capped at $150 million a day, Sandleris said, far less than the bank spent on many days in recent months.

The peso closed at 38.5 to the dollar on Wednesday.

In a far-reaching overhaul of monetary policy, Sandleris said the central bank would abandon its inflation target of 27 percent for this year and instead set an objective of limiting money supply. The bank will target zero growth in the monetary base from now until June 2019, he said.