IMF Begins Work on Bailout for Argentina, With a U.S. Blessing
The International Monetary Fund moved on Friday to formally begin negotiations on a bailout of Argentina, without any objection from the Trump administration.
The crisis in Argentina has prompted the U.S. to once again embrace the type of multilateral and global institutions that have often come under heavy criticism from the Trump White House.
IMF Managing Director Christine Lagarde presented the program Friday in Washington to the IMF’s executive board, where the U.S. has a powerful voice, and said afterward that “we fully endorse” the goals of a financial rescue program for Argentina. Such measures rarely advance without U.S. support.
Argentina is near the brink of a crisis as the Argentine peso has fallen drastically against the dollar, leaving the nation struggling to manage its dollar-denominated debts. It has also been dogged by persistent budget deficits, high inflation and trade imbalances.
The IMF will now begin negotiations with Argentina on a large credit line. Ms. Lagarde said both sides hope for “a rapid conclusion of these discussions.”
She said Argentina would be negotiating for help under an IMF program known as an exceptional access standby arrangement, which allows for very large credit lines. Countries do not necessarily access the full line available to them.
On Monday, U.S. President Donald Trump spoke by phone with Argentina’s president, Mauricio Macri, with Mr. Trump giving “strong support for President Macri’s efforts to transform Argentina’s economy,” according to a White House statement. The two leaders also discussed their mutual concern about the authoritarian regime of Venezuelan President Nicolás Maduro.
And last week, Argentine Finance Minister Nicolas Dujovne met with David Malpass, the Treasury’s undersecretary for international affairs.
In the meeting, Mr. Malpass said he “reiterated strong support for the Macri administration’s market-oriented reform program to promote private-sector-led growth.”
Mr. Malpass’s statement touches on a key reason that an IMF bailout of Argentina is receiving a fairly warm reception from the White House. Mr. Macri’s center-right administration has been trying to reverse course in Argentina, which has long been in thrall to leftist candidates in the tradition of Juan Domingo Perón and his wife, Eva Perón. Such leaders have dominated Argentine elections for most of the past 70 years.
Mr. Macri was elected after the administrations of Néstor Kirchner and his widow, Cristina Kirchner. While initially popular, the Kirchners were increasingly dogged by corruption scandals and criticized for their economic management. Argentina had become infamous in the international community, for example, by not directly addressing economic problems but rather by attempting to manipulate the nation’s economic statistics.
Mr. Macri has sought to undo many of the policies that have led to persistent economic problems, though its trade deficits and fiscal deficits have proved difficult to reverse. Programs targeted for cuts by Mr. Macri, such as subsidizing people’s utility bills at vast expense to the government, were quite popular but a drain on the coffers.
“He’s trying to dismantle that [but] it’s remarkable the Peronists and the Kirchners are still so powerful,” said Jorge Mariscal, the emerging markets chief investment officer for UBS Wealth Management. “Macri has a lot of support from the international economic community for what he represents for emerging markets and for the region.”
But the administration’s shift toward international finance is about more than an Argentine administration that is a strategic ally.
Last month, the U.S. supported a $13 billion increase in funding for the World Bank, after having blocked a funding increase in 2017.
The Trump administration’s first budget in 2017 had proposed eliminating the Overseas Private Investment Corp., a government agency that provides financing and political risk insurance to companies investing in emerging markets, typically with an eye toward U.S. foreign policy interests. But in the 2018 budget, the administration reversed course, proposing to increase OPIC’s funding and lending its support to a legislative proposal that would enlarge the agency and grant it new authorities.
“A global competition for influence is on,” OPIC CEO Ray Washburne told Congress last week in hearings on the proposal to expand his agency. “We have to be engaged in the developing world with a robust alternative to state-owned investments.”
Institutions like the IMF, World Bank or OPIC have often been seen as difficult to justify to American voters, many of whom believe the U.S. gives too much money to irresponsible foreign governments, said Stewart Patrick, a senior fellow at the Council on Foreign Relations.
“When you take a look from a financial perspective, this isn’t subsidizing bad behavior,” said Mr. Patrick, “I think the financial minds in the Trump administration have recognized there is value in having international financial institutions that provide a buffer or cushion so you don’t get into a broader version of an international economic crisis.”
Write to Josh Zumbrun at Josh.Zumbrun@wsj.com