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The International Monetary Fund has decided to revive its rescue plan signed with Argentina in June, providing additional financial support and accelerating the disbursement of funds while the administration of President Mauricio Macricon faces the turbulence of the market and unrest social.
Argentine Finance Minister Nicolas Dujovne and IMF Managing Director Christine Lagarde said on Wednesday that the new deal would increase the size of the bailout by nearly 15 percent to $ 57.1 billion. Argentina is committed to maintaining a floating exchange rate regime without intervention.
"The Fund remains fully committed to helping Argentina tackle the problems it faces," Lagarde told a joint news conference with Dujovne in New York.
The agreement aims to address concerns about the country's ability to service its growing indebtedness and to obtain funds to cover public spending.
"This will enable our country to break out of the turbulence we have been exposed to recently and bring the Argentine economy back to the structural conditions we need for stable growth," Dujovne said.
The agreement still needs to be approved by the IMF's board of directors to take effect.
The expanded program will aim to reduce the country's double-digit inflation by replacing inflation targets with monetary base targets to contain the money supply, the IMF said. It will also be necessary for the central bank to maintain its high interest rate, which was raised to 60% in August.
The IMF added that the central bank will only be able to intervene on the foreign exchange market in the event of "extreme exchange rate overruns".
The central bank will not intervene in the foreign exchange market when the exchange rate is between 34 pesos and 44 pesos on the US dollar, said Wednesday the new president of the Argentine central bank, Guido Sandleris. The peso closed Wednesday down to 38.52 dollars.
Macri was forced to seek help from the IMF earlier this year, after rising interest rates in the US hit the peso and investors sold assets in the United States. Emerging Markets. But aid failed to stem the steady weakening of the peso, forcing the government in August to seek more funds from the IMF and accelerate disbursements. The Argentine currency has lost half of its value against the dollar so far this year.
"I do not imagine that Argentina will be able to exploit foreign markets very soon, after all, they will experience a very strong recession, high inflation, uncertainties about the elections next year. So there are a lot of fundamental questions left. on the stability of the macroeconomic situation, "said Gustavo Rangel, chief economist for Latin America at ING. "It will take time for them to access the market again."
Mr Dujovne then announced austerity measures in early September, including major cuts in subsidies and public works as part of an effort to offset a large budget deficit and to meet IMF conditions.
The IMF agreement comes one day after the president of Argentina's central bank, Luis Caputo, resigned unexpectedly less than four months after filing reports about disputes with the fund over the bank's foreign exchange policy. Under Caputo's leadership, the central bank intervened in the foreign exchange market, burning billions of dollars of reserves to contain the sale of the peso. The IMF opposed it by supporting a floating currency.
He was replaced by Sandleris, a senior finance official who was educated at Columbia University. On Tuesday, Sandleris said the main goal of the central bank is to reduce inflation, currently to 34%.
Mr Sandleris said at a press conference that the central institution would provide zero nominal money base growth – banknotes and coins in circulation and bank deposits to the central bank – from here on. next June to reduce inflation. He added that this implies a significant monetary contraction.
Argentina's economy contracted 2.7% in July from the previous month, as the financial crisis hit consumer demand. In the second quarter, the economy was down 4.2% from the previous year.
The economic crisis has shaken Macri's administration to cope with Argentina's growing anger at the sharp contraction and high inflation. On Tuesday, powerful Argentine unions staged a national strike, warning that it would increase protests if the government did not reverse the austerity measures.
"If there is no plan B, there will be no truce with the Argentine labor movement," union leader Juan Carlos Schmid said.
After taking office at the end of 2015, Mr. Macri hoped to avoid social upheaval by gradually unraveling the free spending policies of his predecessor rather than implementing the type of economic shock therapy that caused unrest and provoked the fall of previous presidents. His government was relying heavily on foreign credit to close the deficit, raising concerns among economists, as the cost of servicing the debt was now increasing because of the weakness of the peso.
Argentina's debt ratio will reach 84 percent of gross domestic product by the end of the year, up from 57 percent a year earlier, said consulting firm Oxford Economics this week. "Argentina's debt-to-GDP ratio is growing at an unsustainable rate," the firm said.
-Santiago Pérez contributed to this article.
Write to Jeffrey T. Lewis at [email protected] and Ryan Dube at [email protected]
