Argentines shocked by IMF loan request

Argentines shocked by IMF loan request

Seventeen years ago, economic policies backed by the IMF brought Argentina to its knees. Five years later, then-president Néstor Kirchner severed IMF ties, swearing never again. This week, a run on the currency forced President Mauricio Macri to return to the international lender.

Seventeen years ago, economic policies backed by the IMF brought Argentina to its knees. Five years later, then-president Néstor Kirchner severed IMF ties, swearing never again. This week, a run on the currency forced President Mauricio Macri to return to the international lender.

On Tuesday, in a televised address to the nation, a sober-faced Mr Macri said assistance from the International Monetary Fund would help “avoid a crisis like the ones we have faced before . . . [it] will allow us to strengthen our programme of growth and development”.

It was a stunning reversal for the 59-year-old former businessman who came to power in December 2015 vowing to make Argentina a “normal country”, after 12 years of leftist rule by Mr Kirchner and his wife Cristina Fernández. In a country where many still feel traumatised by the phrase “IMF”, it was also a major psychological shock.

“When you talk about the IMF in Argentina, you are talking about a crisis,” says Carlos Germano, a political analyst, who says that “Fund” has become a dirty word in Argentina. “The Kirchner government worked hard to [demonise] the IMF. The vast majority now believe it is synonymous with crisis and usury.”

There are few countries with as chequered a history of IMF relations as Argentina. Many Argentines associate it inextricably with the social and economic chaos that followed the country’s 2001 devaluation and $100bn debt default.

The crisis was so bad that one of five Argentines lost their jobs. The peso, which had been tied to the dollar, lost two-thirds of its value. Banks froze deposits. More than 20 people died in protests and looting. In just two weeks, the country had five successive presidents.

So, while Mr Macri’s decision to return to the IMF for a reported $30bn credit line may calm investors worried about his ability to stabilise the economy after a string of interest rate increases failed to stop a two-week run on the peso, locals are less convinced.

“It’s Macri’s first serious crisis, the first big bump along the road,” says Juan Cruz Díaz, managing director at Cefeidas Group, a Buenos Aires risk consultancy. “On Wall Street they may think this a good thing, but it will be much harder to sell this politically.” 

Mr Macri’s popularity has already taken a battering and seeking IMF help will not help it recover. As investor confidence in Argentina has, in some part, been predicated on the possibility of Mr Macri winning a second term in 2019, that is also a potentially serious blow. 

Walter Stoeppelwerth, head of research at Balanz Capital, a local investment bank, says Mr Macri has set in chain a process whose end is uncertain.

“Argentina is not going to access $30bn from the IMF unless the currency is at much weaker levels and it is willing to accept the political liability of adjusting the fiscal deficit more aggressively,” he says. “There will be a quid pro quo that may not be acceptable for Macri.”

Still, Argentina is very different from what it was in 2001. Over the past two-and-a-half years, the government has made great strides in re-building market confidence. Last year, it even sold a heavily oversubscribed 100-year bond to international investors. This year, it is heading the G20.

Attempts by critics to compare recent events to the run-up to the 2001 crisis are exaggerated, analysts say. 

“No one seriously thinks that,” says Mr Díaz. “We are a long way from 2001. It is still a solid government — with problems, yes, and there have been a lot of criticisms of the way economic policy has been handled — but no one is questioning the strength or the capability of the government to run the country, which is what was happening in 2001.” 

The country’s finances have also changed radically. The exchange rate is floating, not fixed. Most bank deposits are in pesos instead of dollars, points out Martin Castellano, head of Latin America research at the Institute of International Finance. Almost half of public debt is also held by public institutions such as the central bank. In 2001, it was mostly in private hands.

The broad political situation has also changed. In 2001, the Peronist opposition was powerful and eager to oust the flailing government of Fernando de la Rúa. Today it is in disarray, unable to unite around a single leader. Nobody seriously believes that Mr Macri will fail to make it to the end of his term in December 2019, becoming the first non-Peronist president to do so.

Last, the IMF has changed. “Today it is very different from the one we knew 20 years ago,” Nicolás Dujovne, Argentina’s treasury minister, said on Tuesday. “It has learnt lessons from the past, and I repeat, it has helped our gradual programme.” 

Exactly what kind of IMF programme Argentina will seek remains unclear. With high inflation and wide current account and fiscal deficits, the country does not obviously meet the criteria needed for a so-called IMF flexible credit line. 

Still, Christine Lagarde, the IMF’s managing director, said on Tuesday: “Discussions have been initiated on how we can work together to strengthen the Argentine economy and these will be pursued in short order.”

She also described Argentina as a “valued member of the International Monetary Fund”. Such language would have been hard to imagine only a handful of years ago.

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