IMF increases Argentina bailout package to $57bn

Financial Times – The IMF will lend an extra $7.1bn to Argentina as part of its bailout package, which is now the multilateral lender’s biggest programme ever, its managing director Christine Lagarde announced on Wednesday.

The fund added it would allow Argentina to receive more cash up front by increasing the amount available to the Latin American country between now and the end of 2019 by an extra $19bn.

The changes swell the size of the total bailout package to $57bn, of which $15bn has already been disbursed and a further $35bn can now be disbursed by the end of next year.

The path to the agreement was smoothed by the resignation of Argentina’s central bank governor, Luis Caputo, on Tuesday over what was understood to be a disagreement with the IMF over how much the central bank could intervene in foreign exchange markets. Ms Lagarde said on Wednesday that the central bank will adopt “a floating exchange rate regime without intervention” under new governor Guido Sandleris.

“In the event of extreme overshooting of the exchange rate, the [central bank] may conduct limited intervention to prevent disorderly market conditions,” said Ms Lagarde.

Mr Sandleris said the central bank would not intervene if the currency remained within a range of 34 to 44 pesos to the dollar. If the peso trades outside of that range, the central bank will be able to use up to $150m of its reserves each day to support the currency.

Although the revised agreement still has to be approved by the IMF’s executive board, Ms Lagarde said the credit line was no longer precautionary but discretional, meaning that the additional funding, on top of the $50bn loan approved in June, can all be used for financing the budget as and when it is needed.

“The risk of default has been removed,” said Federico Furiase, an economist in Buenos Aires. Between the increase of the loan and accelerated payments compared with the original deal, “that will enable the treasury to practically close the 2019 financing programme without going to the market”, he said.

But Mr Furiase added that the revised deal did not include extra reinforcements for the central bank’s foreign exchange reserves, meaning that the concerns over the exchange rate could continue.

“Exchange rate risk is not totally cleared yet, but of course removing the risk of default could help to stabilise [the peso],” he said, adding that markets would also welcome a promise by the central bank to prevent growth in the monetary base until June next year.

Ms Lagarde emphasised that a central objective of the revised plan was to protect the most vulnerable. Argentina’s economy is expected to contract more than 2 per cent this year, while inflation is expected to rise by more than 40 per cent.

“We are pleased to see a firm commitment [by the government] to the expansion of social protection,” she said, underlining that this was a “key priority” for the IMF.

“We stand by Argentina,” she added, stressing that she was confident the revised plan would be “instrumental” in restoring market confidence in the government’s “ambitious” reform plans.

The government of President Mauricio Macri has promised to balance the budget next year.

Ms Lagarde conceded though that “a great deal of work remains to be done if Argentina is to respond effectively to the problems” it faces.

Share on facebook
Share on twitter
Share on linkedin