Ar­gentina’s Macri in trou­ble de­spite IMF loan

Viet Nam News - - WORLD -

BUENOS AIRES — Armed with a topped-up IMF loan of US$57 bil­lion, Ar­gentina’s gov­ern­ment pre­pared for a bat­tle to sta­bilise its cur­rency and tame run­away in­fla­tion, but it faces steep chal­lenges to im­ple­ment harsh cuts ahead of polls next year, an­a­lysts said on Thurs­day.

Even with the in­creased pack­age, Pres­i­dent Mauri­cio Macri’s cen­tre-right gov­ern­ment has its back to the wall, with disbursement be­ing linked to his pledge to erase the bud­get deficit from 2019.

With­out a ma­jor­ity in Con­gress, Macri will have to con­vince a hos­tile Pero­nist op­po­si­tion to adopt a 2019 aus­ter­ity bud­get with sweep­ing spend­ing cuts.

The re­vamped agree­ment will al­low the South Amer­i­can coun­try “to leave be­hind the tur­bu­lent path of re­cent months,” Fi­nance Min­is­ter Nico­las Du­jovne said af­ter the deal was an­nounced on Wed­nes­day.

But as if to prove there is no quick fix, Ar­gentina’s un­der-fire cur­rency wob­bled again on Thurs­day.

The peso — which has shed half its value against the dol­lar this year — dipped 2.3 per cent shortly af­ter mar­kets opened.

Set­ting the tone for the bat­tles ahead, Alex Ki­cillof — former econ­omy min­is­ter in the pre­vi­ous left­ist gov­ern­ment of Cristina Kirch­ner – called Macri’s aus­ter­ity mea­sures “a shame” and said gov­er­nors and law­mak­ers would not vote for it.

Buenos Aires orig­i­nally se­cured a $50 bil­lion loan back in June, but quickly burned through an ini­tial $15 bil­lion tranche to fight a run on the cur­rency, in the process rais­ing in­ter­est rates to 60 per cent.

How­ever, Macri re­vealed last month that he had asked for an ac­cel­er­ated disbursement of the re­main­ing $35 bil­lion, prompt­ing talks on a larger IMF loan.

Daniel Ar­tana, chief econ­o­mist with the Latin Amer­i­can Eco­nomic In­ves­ti­ga­tion Foun­da­tion, said Macri had in­her­ited a bro­ken econ­omy from Kirch­ner in 2015 and was head­ing in the right di­rec­tion.

“Ar­gentina is com­mit­ted to do­ing what it needs to do, it’s a steep drop in the bud­get deficit, but Kirch­ner’s eco­nomic le­gacy was a tick­ing bomb,” he said.

But with unions fight­ing Macri’s cuts tooth and nail with daily street protests, get­ting to the holy grail of a zero deficit will be a painful process.

The pri­mary fis­cal deficit was 6.0 per cent in 2015, 3.9 per cent in 2017, and is ex­pected to be 2.7 per cent in 2018.

Af­ter the peso de­pre­ci­ated by half this year — on Thurs­day was trad­ing at over 40 to the dol­lar — the agree­ment an­nounced in New York “is a plan to put out the fire,” said econ­o­mist Roberto Cachanosky.

“It’s not be­cause you have money that every­thing is set­tled,” he said, re­fer­ring to the IMF’s early disbursement of 19 bil­lion avail­able over the next few months.

An­a­lysts say a key point is that the funds avail­able would cover Ar­gentina’s 40 bil­lion of ex­ter­nal debt re­pay­ments due be­fore the end of 2019, low­er­ing the risk of rolling over the debt.

Moody’s an­a­lyst Gabriel Tor­res pointed out that “once it re­gains mar­ket con­fi­dence,” Ar­gentina will have to find other sources of fi­nanc­ing in the fu­ture.

The agree­ment may give Ar­gentina much-needed “room to ma­neu­ver, but it does not solve the prob­lems.”

“Ar­gentina is a very vul­ner­a­ble econ­omy, de­pen­dent on com­modi­ties and also com­modi­ties that are af­fected by the cli­mate,” like grains and ce­re­als.

Ag­gra­vat­ing the cri­sis was a drought that dec­i­mated soy­bean ex­ports.

Economists on all sides agree that the IMF has taken the reins of the Ar­gen­tine econ­omy.

“From now un­til the elec­tions (Oc­to­ber 2019), it’s the IMF who is mak­ing the eco­nomic pol­icy,” said Miguel An­gel Broda.

“It is a to­tal tri­umph for the Fund. Macri has handed over Ar­gentina’s mon­e­tary sovereignty to the Fund,” said Ki­cillof, who fears the cri­sis will only worsen.

Re­cov­ery still seems far off for South Amer­ica’s third-largest econ­omy.

In­dus­trial out­put saw its third con­sec­u­tive monthly de­cline in July, down 5.7 per cent, and fur­ther dis­ap­point­ing data is ex­pected for Au­gust and Septem­ber. The gov­ern­ment es­ti­mates the econ­omy will con­tract by 2.0 per cent this year.

Growth has been slashed, with a pal­try 0.5 per cent fore­cast for next year. — AFP

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