International Monetary Fund to work with Argentina to strengthen lending program -Lagarde

Daniel Fowler
September 2, 2018

In a televised address on Wednesday, Argentine President Mauricio Macri acknowledged: "We bear agreed with the IMF to arrive the overall needed funds to impart compliance with the financial program subsequent year".

It was the biggest one-day decline in the peso since the currency was allowed to float in December 2015.

Macri's request had seen the peso lose nearly 7.0 per cent on Wednesday and when it opened on Thursday down another 4.0 per cent, the Central Bank made a decision to intervene, pledging to keep interest rates at 60 per cent until December at least. The last recent one, which was punctuated by a 2002 debt default, tossed millions of middle-class Argentines into poverty.

The run on the peso prompted Argentina to turn to the International Monetary Fund for the $50-billion credit line earlier this year.

The Argentinian peso depreciated at a total of 40% when compared to the United States dollar this year.

The decision aims to "eliminate any uncertainty that was created before the worsening of the global outlook", Macri said.

But analysts said the government needs to provide more detail about how it plans to achieve aggressive International Monetary Fund fiscal targets, if markets are to be assuaged.

Paul Greer, portfolio manager of the Fidelity Emerging Market Debt fund said the central bank's latest policy move, in addition to the IMF "engineering fiscal austerity" in Argentina, "it looks likely that the economy is heading for a hard landing recession over the next 12 months".

On top of that, the government faces a major obstacle in November, when a $7 billion foreign exchange debt repayment is due.

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The country's opposition blames Mr Macri's centre-right policies, including the end of capital controls and cuts to social programmes, for the economic crisis. Earlier this month, Turkey's currency crisis sent the lira to a record low against the USA dollar and sparked concerns about emerging markets investments.

Today, the Argentinian central bank hiked its benchmark rate from 45% to 60% in a forceful attempt to shore up confidence.

The worldwide lender has admitted that it had a made a string of mistakes that contributed to Argentina's economic implosion.

U.S. Treasury yields fell further on Thursday as investors moved to safe havens following the report of Trump's tariffs plan and the Argentine peso's tumble.

Ahead of an expected re-election bid next year, Macri has seen his popularity fall after reducing retirement benefits and cutting utility subsidies that people had grown accustomed to under Fernandez.

"I know that these tumultuous situations generate anxiety among many of you", Mr. Macri said.

Argentina's biggest labor group, the CGT, said on Wednesday it will call a 24-hour general strike on September 25 to protest Mr. Macri's belt-tightening measures.

Marcos Pena, President Macri's cabinet chief, denied that the government was facing an economic disaster. "I understand this, and I want you to know I am making all decisions necessary to protect you".

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