Argentina forced to seek IMF aid over fears for economy
Argentina’s struggle this week to prevent a collapse in its currency and soaring interest rates from destabilising its ailing economy appeared to have ended in failure on Friday, leaving it to seek financial aid from the International Monetary Fund.
The IMF, the lender of last resort to nation states, said the South American country had formally requested an “exceptional access standby arrangement” that would allow Argentina to pay its foreign bills while the government sought to prevent a repeat of the 2001 crisis.
The IMF managing director, Christine Lagarde, said she had conveyed to the IMF board the Argentine authorities’ intention to request the facility, understood to be in the region of $30bn.
In a message that Lagarde said showed the IMF stood beside Argentina in its time of trouble, she said the board would support the country to build and maintain social cohesion while it pursued its economic goals amid “significant financial volatility”
A drought that has severely damaged the country’s important agricultural sector was cited by analysts as one of the main causes of the recent troubles. Argentina is a major exporter of foodstuffs, especially to China and the US, and relies on its sales to generate foreign currency.
On Thursday, the central bank stopped selling dollars to prop up the currency, which has fallen by 16% this month to hit a series of all-time lows.
President Mauricio Macri declared the run on the peso to be over and sent an olive branch to the international money markets by vowing to speed up his deficit cutting effort. But now he has been forced to follow through on his statement on national television on 8 May saying he would seek IMF help.
The request is a humiliating U-turn for a country that only last year was considered secure enough to sell a heavily oversubscribed 100-year bond to international investors. Macri is credited with instituting a series of reforms, though his main failure has been to attract funds kept abroad by wealthy Argentines and major domestic corporations.
Macri is seeking to avoid a repeat of the crisis that enveloped the country 17 years ago, when economic policies backed by the IMF brought Argentina to its knees.
Five years later, after unemployment had soared and thousands of businesses had gone to the wall, the then-president Néstor Kirchner severed IMF ties, swearing the country would never again allow the IMF on its soil.
In his 8 May speech, Macri said IMF assistance would help “avoid a crisis like the ones we have faced before … [it] will allow us to strengthen our programme of growth and development”.
An exceptional access programme is an IMF financing programme worth anything above 145% of a country’s IMF quota per year or 435% over the life of the programme. An IMF quota is the value of a country’s share in the IMF financing system, tied to its impact in the world economy. Argentina’s government requested IMF financing earlier this month after a run on the peso currency.