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Argentina agrees $50bn financing deal with IMF

Argentina agrees $50bn financing deal with IMF

06/07/2018 19:07 - In the end, the International Monetary Fund came to Argentina’s rescue with more than expected — and faster, too.

In its standby arrangement with Argentina, announced on Thursday, the IMF is prepared to lend as much as $50bn over three years, a move that will probably be well received by markets after media speculation that it would be closer to $30bn.

“This is a plan owned and designed by the Argentine government, one aimed at strengthening the economy for the benefit of all Argentines. I am pleased that we can contribute to this effort by providing our financial support, which will bolster market confidence, allowing the authorities time to address a range of longstanding vulnerabilities,” said Christine Lagarde, IMF managing director, in a statement.

As a key part of the agreement, the IMF will require no further fiscal adjustment this year than the 2.7 per cent of the primary fiscal deficit that has already been announced by the government. For 2019 the target will be cut to 1.3 per cent from 2.2 per cent.

The aim is now to reach primary fiscal equilibrium by 2020, rather than 2021 previously.

The new inflation targets for the central bank are 17 per cent for 2019, 13 per cent for 2020 and 9 per cent for 2021 In a sign of the political goodwill towards Argentina, the negotiations took place much more quickly than initially expected.

Officials had expected a deal to be announced within six weeks after President Mauricio Macri said that Argentina would seek financial backing from the IMF on May 8. In the end, the talks lasted a month. Alberto Bernal, chief EM and global strategist at XP Investments, argued that Argentina seeking support from the IMF early is positive, as it implies that the hit to economic growth will be lower.

“It’s better to go now than after the recession kicks in. If you are going to have a problem, it is better to fix it as soon as possible — just as you if you have cancer, the sooner you go to the doctor, the greater your chances of success,” he said.

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