The IMF has given provisional clearance to a loan to Argentina worth $50 billion over a three-year period. The agreement requires the approval of the board of the IMF, but this should be a formality. The request for assistance from Argentina was lodged on the 8th of May this year. Argentina intends to use the loan to provide financial support, if needed, for its reform process. An IMF statement notes: “The [Argentine] authorities have indicated that they intend to draw on the first tranche of the arrangement, but subsequently treat the loan as precautionary”.
The Argentine Peso has come off a record low value of 25.01 to the US Dollar to stand currently at 24.89 as the news of the support measures was released. Inflation in Argentina is running at 25.6% and the central bank recently raised interest rates to a dizzying 40% in a bid to support the currency and tackle inflation.
As part of the agreement, Argentina has confirmed its plans to rein in public spending and tackle high inflation – the loan provides financial backing for the plans of President Macri. However, the decision to ask the IMF for the loan was strongly criticised by some in his country remembering the aftermath of an earlier default (2001). Defending his decision to approach the IMF, President Macri noted that the loan would allow his administration to strengthen a programme of growth and development “giving us greater support to face this new global scenario and avoid crises like the ones we have had in our history”.
The IMF’s director, Christine Lagarde, stated: “As we have stressed before, this is a plan owned and designed by the Argentine government, one aimed at strengthening the economy for the benefit of all Argentines. I am pleased that we can contribute to this effort by providing our financial support, which will bolster market confidence, allowing the authorities time to address a range of long-standing vulnerabilities.”
Under the terms of the loan, reduction of Argentina’s fiscal deficit to zero will need to occur by 2020, a year earlier than Argentina originally proposed. The loan has a provision to allow the government to increase spending on social programmes, should this be necessary.
