IMF’s Lagarde says ready to assist Argentina
WASHINGTON - Agence France-Presse
Lagarde said she instructed the IMF team to continue discussions on a loan program with the goal to “reach a rapid conclusion.”
“I stressed my strong support for Argentina’s reforms to date, and expressed the Fund’s readiness to continue to assist the government,” she said in a statement following her meeting with Argentina Economy Minister Nicolas Dujovne.
Despite the reform efforts, the country once again finds itself facing a falling currency, high debt and soaring inflation. Recent market turbulence has rocked Latin America’s third-largest economy, prompting President Mauricio Macri to announce on May 8 that he would request IMF help as a “preventative” measure.
Lagarde said she and Dujovne discussed “how the IMF can best help the authorities strengthen the Argentine economy in light of renewed and significant financial market volatility.”
Dujovne also met on May 10 with U.S. Treasury Under Secretary for International Affairs David Malpass, who “reiterated strong support for the Macri administration’s market-oriented reform program.”
Treasury said in a statement that he welcomed the talks with the IMF. US support is key since it holds veto power in the IMF.
Argentina is seeking a high access “stand by” financing arrangement which would provide funds above the normal loan amount, but officials have not said how much they are requesting.
IMF stand-by loans last for up to three years, but more usually last 12-24 months. They require regular reviews by IMF staff to make sure the government is following through on reform commitments and meeting targets for things such as spending cuts and pension reforms.
The talks with the Washington-based lender come 17 years after the country last defaulted on its debt and 12 years after it cut ties with the IMF.
As U.S. interest rates rise, investors in recent weeks have been fleeing Argentina, driving up demand for U.S. dollars, and driving the peso down.
The central bank has burned through $8 billion in reserves in a week to support the currency, leaving it with about $55 billion. It also raised the benchmark interest rate to 40 percent to try to contain the peso’s decline.
But going to the IMF is a risky move for Macri, given the bitter history the country has with the Washington-based lender, and the negative views on the conditions the fund might require.
In January 2006, Argentina paid down its last loan to the IMF and severed relations with it, refusing even to allow the regular annual review of economic conditions conducted for all member countries for the next 10 years.
After taking office in December 2015, Macri floated the Argentine peso, ending the strict controls in place under the government of Cristina Kirchner, and began to address outsized government spending.
In addition to the weak peso, Argentines are struggling with double-digit inflation, which hit 24.8 percent last year. The government has set an inflation target of 15 percent, which it insists will not change, but the IMF is forecasting a rate of 19 percent this year.