Argentina agrees to $50bn loan from IMF amid national protests
International Monetary Fund (IMF) Argentina agrees to $50bn loan from IMF amid national protests
Outcry as country requests assistance from international lender after peso plummets
The International Monetary Fund has stepped in to shore up the Argentinian economy with a $50bn (Â£37bn) loan agreement.
Argentina requested assistance from the internati onal lender of last resort on 8 May after the peso weakened sharply in an investor exodus from emerging markets.Markets fall ahead of G7 meeting; BT CEO quits - business live Read more
As part of the deal, which is subject to IMF board approval, the government pledged to accelerate plans to reduce the fiscal deficit â" the gap between government spending and revenue â" even as authorities now foresee lower growth and higher inflation in the coming years.
The deal marks a turning point for Argentina, which for years shunned the IMF after a devastating economic crisis in 2001-02 that many Argentinians blamed on IMF-imposed austerity measures. The president Mauricio Macriâs decision to turn to the lender has triggered national protests.
âThere is no magic: the IMF can help but Argentines need to resolve our own problems,â the treasury minister said at a news conference on Thursday. NicolÃ¡s Dujovne said he expected the IMF board to approve the deal during a meeting on 20 June. After that, he said he expected an immediate disbursement of 30% of the funding, or about $15bn.
Argentina will seek to reduce its fiscal deficit to 1.3% of gross domestic product in 2019, down from 2.2% previously, Dujovne said. The deal calls for fiscal balance in 2020 and a fiscal surplus of 0.5% of GDP in 2020.
The IMFâs managing director, Christine Lagarde, said: âThis measure will ultimately lessen the government financing needs, put public debt on a downward trajectory and, as President Macri has stated, relieve a burden from Argentinaâs back.â
The interest rate will be from 1.96% to 4.96%, depending on how much Argentina uses. The country must pay back each disbursement in eight quarterly instalments, with a three-year grace period.
As widely expected, the government will also send a proposal to Congress to reform the central bankâs charter and strengthen its autonomy. The central bank will also st op transferring money to the treasury, a practice known locally as the âlittle machineâ, which is seen as a key driver of incessant inflation.
âThe little machine has been turned off; it has been unplugged,â the central bank governor, Federico Sturzenegger, said.
The IMFâs backing was expected to bolster Argentinian assets, which have sagged in recent months amid a global sell-off in emerging markets.
Neighbouring Brazil, Latin Americaâs largest economy, has also seen its currency weaken in recent days to its lowest level in more than two years amid fears over the countyâs fiscal outlook and political future.
âIt is convincing and greatly exceeds expectations. Markets should react very positively tomorrow,â tweeted Miguel Kiguel, a former finance secretary in Argentina. âIt is clear the country has capacity to pay.â
However, the short-term picture remains more complicated than it appeared several months ago. Dujovne said economic growth was expected at 1.4% for 2018 and 1.5-2.5% for 2019, down from expectations above 3% in both years.
The central bank would also abandon its 2018 inflation target of 15% and would not aim for any particular level this year, Sturzenegger said. A rgentina agreed to new, looser inflation targets of 17% for 2019, 13% for 2020 and 9% for 2021, down from 25% currently.
âThey are mortgaging the future for our children and grandchildren,â tweeted MartÃn Sabbatella, a politician aligned with the former populist president Cristina FernÃ¡ndez de Kirchner.
Argentina and the IMF said the deal would protect the most vulnerable.
In a separate statement, the presidentâs office said it had clinched agreements for an additional $5.65bn from the Inter-American Development Bank, the World Bank and the CAF development bank over the next 12 months.Topics
- International Monetary Fund (IMF)
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