On Thursday, Argentina reached a deal of three years with the International Monetary Fund for a credit line of $50 billion, which was larger than originally expected, and that the government has promoted as being a vote of confidence on its reforms it called market-friendly.
The deal is called a standby agreement and mandates cuts in the fiscal deficit for the country that are sharper than planned initially. It also requires drops in inflation, which has been a difficult challenge for the current government. The agreement must still be approved by the IMF board.
On May 8, markets were surprised when Argentina announced it would ask the IMF for assistance following a plunge in the peso as international investors left emerging markets.
That move prompted political backlash from the government’s opposition in a country in which most of the population has continued to this day to place the blame on the IMF for the economic crash of Argentina and default in 2001.
The agreement shows support from the world community for Argentina and it good news, said Nicolas Dujovne the treasury minister. He added that the government was very pleased because it allows them to head toward fiscal balance.
The dollar amount of the new agreement is over double what normally is granted for standby arrangements, and could bolster support of the economy of Argentina after the central bank raised the benchmark interest rate last month to 40% as currency plunged. The peso in Argentina is lost 25% of its value in 2018.
Dujovne said that 30% or $15 billion of the total would be given to Argentina in quick fashion following the IMF board’s approval, which is expected for June 20. The remainder of the funds will be maintained as precautionary.
President Mauricio Macri entered office in December 2015 and had the goal of opening Argentina to international markets as well as attracting foreign investors following over a decade of complete economic isolation.
Part of its agreement reached with the IMF mandates that Argentina commits to lowering the budget deficit at a quicker pace than had been initially planned.
The agreement also will increase the central bank’s independence and establish a path to lower inflation from 17% in 2019 to 9% in 2021. Analysts are expecting inflation in 2018 to reach as high as 25%.
IMF Managing Director Christine Lagarde praised the agreement saying the plan was owned and designed by the government of Argentina, and aimed at benefiting all Argentines through strengthening the economy.