Argentina and IMF agree to accelerated loan payout

Argentina's President Mauricio Macri said on Wednesday that the International Monetary Fund (IMF) has agreed to accelerate funding in support of his government's austerity programme, but the move did little to calm the market as the country's currency came under renewed pressure.

IMF chief Christine Lagarde said the Washington-based lender would look at speeding up payments of the bank's $50 billion loan after talks with Macri earlier on Wednesday.

TRT World's Laila Humairah reports.

The IMF approved the $50 billion, three-year standby loan in June.

Lagarde said the IMF would work to strengthen its arrangement with Argentina and "re-examine the phasing of the financial program".

The "more adverse international market conditions" battering Argentina's economy "had not been fully anticipated," she admitted in a statement.

Macri called for the early release of the funds in a phone call with Lagarde on Wednesday.

It came amid heightened volatility in Argentina's financial and currency markets, which have been battered by uncertainty over inflation, an economic downturn and budget deficits.

World's highest interest rate

The country's central bank on Thursday increased its benchmark interest rate to 60 percent — the world’s highest — in an effort to halt a sharp slide in the value of the peso, which plunged to a new record low.
The peso slipped about 7 percent against the dollar Wednesday and was down another 15 percent by midday Thursday, when it was trading at 39.6 to the dollar. 

The central bank said in a statement that it was hiking its benchmark interest rate in response to the current currency scenario and the risk of greater impact on local inflation. The rate had been set to 45 percent earlier this month.

Plummeting peso 

The Argentine peso has lost more than 40 percent of its value against the dollar this year. Inflation is projected to surpass 30 percent by the end of 2018.

And the peso continued its decline Wednesday, plummeting 6.99 percent through the day to fall to 34.48 to the dollar by the close.

Market analyst Marcelo Trovato said investors just aren't believing Macri and his economic team.

Macri had sought to soothe the turbulence in a statement before markets opened, assuring Argentines that help is on the way.

"Over the past week, we have had new expressions of lack of confidence in the markets, especially over our ability to obtain financing for 2019," Macri acknowledged.

He said the IMF would provide "all the funds necessary to guarantee the fulfilment of the financial programme next year."

In return for an accelerated loan payment, the government has committed to reducing its budget deficit to 2.7 percent this year, from 3.9 percent in 2017, and to 1.3 percent of the GDP next year.

Doubts over Argentina's ability to repay heavy government borrowing have grown and analysts said the move reflected growing desperation in Macri's centre-right government.

TRT World speaks to journalist Monica Yanakiew in Buenos Aires. 

"The announcement was vague and was made by the president, which has its risks," said analyst Lorenzo Sigaut of consultants Ecolatina, who said it would have been more convincing if the announcement had been made by the economy minister.

Overall doubts of an Argentine default on borrowings had been assuaged "only until Macri's term ends (in December next year) but as of 2020, they remain latent."

"The dollarisation of assets is fuelled internally by Argentines' distrust of the peso, because the government has promised much on the economy but hasn't delivered," said Sigaut.

Part of the $50 billion loan is to be allocated to support the budget, and the rest to the country's central bank to shore up the peso over a three-year period.

The first $15 billion tranche has already been released.

Economist Matias Carugati said there was a lack of information coming from the government to calm the markets.

"We know that the IMF is advancing money to cover us next year, but how much will they advance us and under what conditions?" he asked.

He maintained however that "the risk of a default is exaggerated."

"Argentina does not have a solvency problem, but more a short-term liquidity issue. It's urgent to achieve financial calm and then see how to repair the damage."

Union groups to protest

Argentina's biggest labour group, the CGT, said on Wednesday it will call a 24-hour general strike on September 25 to protest Macri's belt-tightening measures. Two smaller union groupings said they will go on a 36-hour strike on September 24 to protest the IMF, which many blame for the 2001-2002 crisis.

The crisis 17 years ago resulted in one of every five Argentines being unemployed, millions sliding into poverty and some reporting going hungry.

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

"I know that these tumultuous situations generate anxiety among many of you," Macri said. "I understand this, and I want you to know I am making all decisions necessary to protect you."

The economy contracted 6.7 percent in June, the third month in a row of negative growth, and the annual growth rate was a negative 0.6 percent.