President Macri says it would help country ‘avoid a crisis like the ones we have faced before’
Argentina has appealed to the International Monetary Fund for an emergency credit package in an effort to avoid a financial crash and rescue its faltering peso currency from a long downward slide against the dollar.
The announcement, against a backdrop of surging interest rates and stubbornly resistant inflation, brought back echoes of Argentina’s monetary crash and foreign debt default in December 2001 when the peso dropped overnight to a quarter of its value against the dollar and bank accounts were frozen nationwide.
“This will allow us to face the new global scenario and avoid a crisis like the ones we have faced before in our history,” the president Mauricio Macri said.
Macri said international conditions had changed since he assumed office in December 2015. “During the first two years we have had a very favourable global context, but today that is changing, global conditions are becoming increasingly complex due to several factors: interest rates are rising, oil is rising, currencies of emerging countries have been devalued, all variables that we do not control.”
Last week Argentina’s central bank raised interest rates from 33.25% to 40% in a bid to halt the slide in the peso.
The Argentinian currency has been losing value against the dollar at a steady rate in the last few months, falling from under 20 pesos to the dollar to 24 pesos on Tuesday despite the latest rate rise. The peso has depreciated by 18% so far this year.
Government sources quoted in Argentina suggested that Macri will be requesting $30bn from the IMF at below market interest rates. “It’s a large loan that justifies paying the political cost,” the daily Clarín said.
Shoring up the value of the peso has proven a heavy drain on central bank reserves in the last months. “Going to the IMF at 4% is saving about half on the interest rate,” tweeted Elisa Carrió, head of the Civic Coalition party that forms part of Macri’s Cambiemos governing coalition. “This will allow us to be covered until 2019.”
Other members of the coalition were less pleased by the announcement. “More than an agreement with the IMF, what is needed is an agreement between Argentinians,” said Ricardo Alfonsín of the Radical party. “I’m worried by the IMF’s conditions. With time, the remedy could prove worse than the disease.”
Macri said he had spoken to IMF director Christine Lagarde in order to kick start negotiations for the loan.
Cornered by lacklustre growth, rising retail prices, diminishing popularity and a smallerthan-expected soy harvest, Macri’s economic plan has been heavily dependent on foreign financing, which had dried up in recent months, prompting Tuesday’s appeal to the IMF for a line of credit. Last month the IMF reduced its growth forecasts for Argentina during 2018 from 2.5% to 2%. The government also seems unlikely to meet its projected inflation rate of only 15% for 2018, with the IMF predicting 19.2% instead.