Argentina Signs $50 Million Financing Agreement with IMF

It was announced on Thursday 7th June 2018 that Argentina has signed a $50 billion financing agreement with the International Monetary Fund. The agreement, subject to IMF board approval, was reached between the government and the Fund for a three-year standby arrangement.

Argentina’s Peso currency fell sharply due to an investor exodus from emerging markets. Assistance was therefore sought from the IMF on 8th May. This deal is seen as a turning point for Argentina and an opportunity to rebuild their relationship with the IMF. Since the devastating economic crisis of 2001-2002, Argentina has been reluctant to seek assistance from the IMF.

Many believed this economic crisis was due to harsh austerity measures imposed by the Fund. This new agreement has been met by protests in Buenos Aires with many criticising President Mauricio Macri for signing the three-year deal.

In response to these protests, the government insists it sought this assistance to provide a safety net and avoid future crisis affecting Argentina. The government believes the assistance of the IMF will ensure Argentina continues to prosper in the future but warns they must first resolve their own problems before moving forward.

Argentina Treasurer Minister Nicolas Dujovne expects an immediate disbursement of around $15 billion. A statement made by the President’s office ensures that as part of the agreement Argentina will seek to reduce its GDP from 2.2% to 1.3% in 2019.

Furthermore, an emphasis has been placed on fiscal balance with a target fiscal surplus of 0.5% of GDP in 2020.

These measures have been welcomed by the IMF with Managing Director Christine Lagarde maintaining the importance of such a deal. Lagarde highlighted the reduction in government financing needs as well as putting public debt on a downward trajectory. The IMF believes this will ultimately relieve a burden from Argentina as it continues to grow and do business in the future.

Moreover, the government will also send a proposal to Congress, including a reform of the central banks charter in an effort to strengthen its autonomy. Argentina has set inflation targets of 17% for 2019, 13% for 2020 and 9% for 2021, all in a bid to re-establish Argentina as a stable economy to do business in.

In a separate statement, it was announced that an agreement has been reached for an additional $5.65 billion from the Inter-American Development Bank, the World Bank and the CAF development bank over the next 12 months. This deal seeks to build on the previous agreement with the IMF and further strengthen Argentina’s economy in the coming years.

It will be interesting watch going forward how these changes are going to affect the Argentinian economy. While many believe that they are going to provide significant help, others think that it is just a drop of water in a lake and that it is not going to do much to quell the markets. The IMF has a lot of experience in dealing with economies in a similar state to that of Argentina’s, so they know the level of support and expertise that is needed in order to put this money to good use.

Advertisement

Click To Join Our Community Telegram Group