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Argentina faces key week for IMF loan negotiations
BUENOS AIRES, Sept 10, 2018 (BSS/AFP) – Argentine President Mauricio
Macri’s government will continue discussions with the International Monetary
Fund this week as efforts to stave off an economic crisis multiply.
It will be a crucial week for Macri and his government after a turbulent
few months in which the currency has been badly hit by a crisis of
confidence, while public protests have increased in regularity and fervor.
“Argentina will start again, but there is a transition to navigate,” Macri
admitted on Friday.
The peso was starting to recover at the end of last week after a dramatic
two days of crashes the week before.
Having lost 20 percent against the dollar over two days a week earlier, it
regained 5.35 percent from Wednesday to Friday to close at 37.77.
But that still represents a loss of around half its value since the start
of 2018.
Panicking Argentines, who view the dollar as a safety net for their
savings, have withdrawn $500 million from the banking sector since April.
According to official estimates, they are holding $300 billion outside of
their country’s financial circuit, either in cash or abroad, mostly in
Uruguay and the US.
The micro-recovery has been helped by positive noises coming out of
Washington, where Finance Minister Nicolas Dujovne met with IMF head
Christine Lagarde last week.
– ‘Things not resolved’ –
But Macri says the public is right to remain worried.
“All the structural issues have not been resolved because we had three
days of calm,” said the president.
“Hopefully the calm will continue, because we don’t know if another storm
is coming.”
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Argentina’s currency troubles led the government to approach the IMF and
secure a $50 billion loan, with an initial $15 billion tranche of that handed
over in June, in large part to prop up the peso.
Although it briefly calmed the storm, market confidence waned again, in
part due to the impact of the crisis in Turkey on the currencies of emerging
countries.
Argentina went back to the IMF and asked for an advance on loan payments
due in 2020 and 2021, but the announcement it was doing so hurt the peso
again.
In a desperate bid to steady turbulent waters, Argentina’s Central Bank
hiked interest rates to a world-high 60 percent until at least the end of the
year.
But with inflation expected to reach 40 percent for 2018 and Argentines
feeling the pinch from rising prices their meagre salaries are ill-equipped
to cope with, fear and discontent are on the rise.
– Daily protests –
Macri introduced austerity measures, but those proved unpopular with
citizens — protests have become a daily occurrence — while also failing to
appease nervous investors.
Some protesters have been chanting for the government to stop paying its
debt, while Macri’s popularity has been falling.
In return for accelerated IMF funding, Argentina has pledged to eliminate
its primary budget deficit in 2019. It was 3.9 percent of GDP in 2017.
Any advance of loans would have to be approved by the IMF Executive Board,
which doesn’t meet until the second half of September.
Argentina has had to admit that the economy is in a worse state than
previously hoped.
Before returning to Buenos Aires, Dujovne admitted that the country was
“going through a recession” and that recovery would be “slow.”
Having hoped the economy would grow between 0.4 and 1.4 percent this year,
Dujovne said it would actually shrink by 1.0 percent, but some sources have
spoken of a fall of 2.4 percent.
The government is also unlikely to meet the original loan agreement’s
target of 27 percent inflation this year, with 40 percent now expected.
One of Macri’s austerity measures was to increase export taxes on corn and
soy oil.
“They took the decision to consolidate tax, which is positive for the
credit, but has a political and economic cost,” Gabriel Torres, a sovereign
risk analyst at ratings agency Moody’s, told The Economist.
He says the recession will last into 2019.
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