Argentina begins talks with IMF over financial aid
Argentina began formal talks with the IMF on Thursday as it sought emergency financial support to stabilise its economy, a controversial move in a country with painful memories of involvement with the multilateral lender. Argentina’s Treasury minister, Nicolas Dujovne, met with Christine Lagarde, the IMF’s managing director, to discuss a “standby arrangement” with the fund.
Argentina is once again seeking IMF aid after a series of drastic interest rate rises failed to stop the slide in the peso, in a blow for a country that was taking steps to restore its credibility after years as a financial pariah.
“I stressed my strong support for Argentina’s reforms to date, and expressed the fund’s readiness to continue to assist the government,” said Ms Lagarde in a statement after the meeting. In an effort to shore up international support for one of the fund’s traditional economic adjustment programmes — complete with potentially controversial conditions and oversight — Mr Dujovne also met David Malpass, the US Treasury’s undersecretary for international affairs.
Officials estimate the talks could take around six weeks. While initial reports had indicated that Argentina was seeking one of the IMF’s “ flexible credit lines ” — its most favourable lending programme — analysts and former IMF officials had been sceptical that this gambit would succeed.
They are reserved for countries deemed to have the strongest economies and policy records. Under its more traditional SBA programme, the IMF offers a precautionary credit line that can be tapped as needed, or where bailout funds are paid in tranches over time.
SBAs are conditional on a country adhering to pre-agreed policy conditions and fiscal discipline, and IMF missions also visit regularly to monitor adherence. SBAs are “the fund in full nanny mode”, according to a former IMF official. Some analysts had worried that an SBA — and the strings and oversight it entails — might be politically unacceptable to the Argentine government, given the widespread hostility in the country towards the IMF. Many blame the fund for exacerbating the country’s financial crisis in 2001-02. “There is much anguish and uncertainty among Argentines . . . Are any of [their] problems going to be fixed by the IMF? No, everything is going to get worse,” tweeted Agustin Rossi, an opposition congressman. In a press conference on Wednesday, Marcos Pena, cabinet chief, said: “You have to be very careful with the false rumours and the information that is circulating. There has been no suggestion from the IMF to impose conditions or the possibility of receiving a loan. They are technical conversations which will take place with complete transparency.”
President Mauricio Macri inherited a bloated fiscal deficit from the previous administration but has taken strides to reduce it. Last week Mr Dujovne cut the target for the primary fiscal deficit for 2018 from 3.2 per cent to 2.7 per cent, in an attempt to calm panicking investors. It has raised interest rates to 40 per cent to defend its plummeting peso.
With more favourable arrangements such as an FCL seemingly beyond reach, some analysts said the government probably had no choice but to risk a politically unpalatable SBA.
“It will be a complex process,” Claudio Loser, the Argentine former director of the IMF’s Western Hemisphere department, now at the Centennial Group, warned before the SBA became public. “It will put immense pressure on the government.” Others suggested IMF conditions might ultimately be crafted to reflect reforms already under way.
“A request for an SBA is probably more supportive for market sentiment than any consideration of an FCL/PLL, which was simply not credible, and better to get this out the way now than try to fool the market for longer and end up disappointing expectations and further eroding policy credibility,” Stuart Culverhouse, an analyst at Exotix Capital, wrote in a note to clients on Thursday.
Mr Pena pointed out that Ms Lagarde had visited Argentina a month ago, which he said signalled support for Mr Macri’s economic programme. “It is not true that history always repeats itself, and that we are condemned to repeat events.This government has learnt from those mistakes that led to crises” in the past, he said.
The government would continue its “gradualist” economic programme of reducing the fiscal deficit, he said. Mr Malpass played down the possibility of a broader emerging markets crisis earlier this week and said that the Trump administration supported both Argentina’s reform efforts and its decision to approach the IMF.
“The Trump administration has been very supportive of President Macri and the economic reform programme, which has been market-oriented, private sector growth-focused and has been improving the situation in Argentina,” Mr Malpass told a Council of the Americas conference in Washington.
“We’ll be watching the [IMF] discussions very closely. But I don’t think there’s a reason to be talking about it as an emerging markets [crisis] . . . Overall the global growth environment is favourable for economic reforms,” he added.