Argentina’s Treasury minister defends IMF bailout

Argentina’s Treasury minister defends IMF bailout

15/06/2018 Nicolás Dujovne says care has been taken to ensure austerity drive is not overambitious

Argentina’s Treasury and finance minister insisted that the government would meet tough new targets for lowering the fiscal deficit next year, as he defended the country’s decision to seek a $50bn bailout from the International Monetary Fund.  “We took great care in reaching a deal that [will not] force us into positions of political stress that could be counterproductive,” said Nicolás Dujovne in an interview with the Financial Times, recognising that an overambitious austerity drive could endanger President Mauricio Macri’s hopes of winning a second four-year term in elections in 2019. 

Mr Dujovne nevertheless pointed to innovative clauses in the deal proposed by Argentina that will allow the government to increase spending on social programmes and relax the deficit targets if necessary, which the fund “welcomed warmly”. “It will probably apply this in other countries,” he added. 

Such socially sensitive terms contrast with past IMF programmes, not least the fund’s last standby arrangement with Argentina that ended with the 2001-02 financial crisis that had grievous social consequences and tarnished the multilateral lender’s reputation in the country and beyond. 

With the IMF set to disburse an initial $15bn after its executive board meets on June 20, Mr Dujovne insisted that this would take pressure off the peso, which continued to slide despite the announcement of the IMF deal on June 7, losing more than 10 per cent of its value since then. The continued turmoil prompted the resignation on Thursday of the central bank governor, Federico Sturzenegger, who was replaced by Luis Caputo, the finance minister.

Even so, the newly empowered Mr Dujovne, who will take on Mr Caputo’s responsibilities as finance minister, argued that the peso’s slide was “logical” since it followed several weeks when the exchange rate was effectively fixed by the central bank. Meanwhile, a drop in bond prices over the past week was mostly due to a “risk-off” environment in emerging markets, he added. 

How investors continue to view Argentina in the coming months will determine how much the government will borrow of the $50bn that the IMF has made available. 

“It is very probable that in the first quarters we will make use of the option [to access the quarterly disbursements stipulated in the agreement], but then as sovereign risk falls and the market has a greater appetite to absorb Argentine debt at low rates, we can [return to the market]. But for now the fund’s rates are very favourable,” said Mr Dujovne. 

With investor confidence proving difficult to win back, Mr Dujovne admitted that both Argentina and the IMF had taken a great risk in reigniting their relationship. 

“We are partners in this, without a doubt. We need the credibility provided by a programme with the fund, while the fund needs to show it was not mistaken in supporting Argentina, having had problems in Argentina in the past . . . it is a very big bet [for the IMF].” 

Despite Mr Macri’s political gamble, given that the IMF is widely questioned in Argentina, Mr Dujovne remained “convinced” that he would be re-elected next year, regardless of the hit to the economy this year as a result of the run on the currency. 

He likened the temporary slowdown in growth to a bout of turbulence on an aeroplane which would be overcome by the fourth quarter, with growth picking up more strongly in 2019. He expected a 10 per cent year-on-year increase in infrastructure spending next year, driven by a programme of public private partnerships that is under way. 

“Winning the elections will not depend on whether growth is at 4 per cent rather than 2 per cent, but on whether people continue to want the change this government represents, or to go back to populism,” he said, arguing that the Peronist opposition was “very far from offering itself as an alternative” for voters. 

As for Argentines’ prejudice towards the IMF, he said he understood it. But referring to the previous government’s decision to borrow from Venezuela at punishingly high interest rates, he added: “I prefer to work with the international community with a programme that gives us credibility, and enables us to borrow at low interest rates rather than from a dictatorship at 15 per cent.”