The IMF Is Fueling an Argentine Crisis – Again

In little more than three years, Argentine President Mauricio Macri’s government has already signed two agreements with the International Monetary Fund. And recent developments suggest that the country’s long and troubled history with the Fund may be about to repeat itself.

By Hector R. Torres and cross-posted from Project Syndicate

Argentina first needed to borrow from the International Monetary Fund back in 1958. In the six decades since, the country has signed 22 agreements with the Fund. Most were subsequently derailed or ended in failure.

Despite his pro-business credentials, Argentina’s current president, Mauricio Macri, has joined this parade of disappointment. In little more than three years, his government has signed two agreements with the IMF. And recent developments suggest that Argentina’s troubled history with the Fund may be about to repeat itself.

The latest chapter began in June 2018, when the country was running fiscal and current-account deficits equivalent to a combined 11% of GDP. Investors became wary of Argentine bonds, forcing the Macri government to rush to the Fund for help.

With the strong backing of the United States, Argentina was soon given a $50 billion IMF loan to use over the next three years. The government pretended that this was just a “precautionary” program: Argentina would keep the money in its back pocket to reassure private investors.

Only two months later, however, Macri admitted that Argentina needed even more than $50 billion – and right away. In IMF jargon, the deal had to be “front-loaded.”

At this point, Macri’s friendship with US President Donald Trump (they knew each other from the world of real estate) paid off. The Fund agreed – albeit reluctantly – to top up the loan with an additional $7 billion, bringing it to $57 billion. Moreover, about 90% of the full amount, or $51.2 billion, would be disbursed before Argentina’s next presidential election in late 2019.

This is the IMF’s largest-ever loan to a country, and Argentina’s ailing economy badly needs the financial support. On April 15, the Fund sent a $9.6 billion installment. But rather than using this money to build up its foreign-exchange reserves or buy back debt, the Macri government will instead buy Argentine pesos.

Unsurprisingly, Argentina’s risk premium has soared. Investors are restless, and not only because former President Cristina Fernández de Kirchner is leading the polls

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