Argentina Seeks Early Release of $50b IMF Loan

In an unexpected move Argentina has asked for an early release of a $50 billion loan from the International Monetary Fund amid a growing economic crisis, the IMF said.

President Mauricio Macri said on Wednesday the move was designed to restore confidence in the Argentine economy, the BBC reported.

“Over the last week we have seen new expressions of lack of confidence in the markets, specifically over our financing capacity in 2019,” Macri said in a televised address. “This decision aims to eliminate any uncertainty.”

The IMF released a statement through Managing Director Christine Lagarde saying she had met with Macri on August 29.

“In consideration of the more adverse international market conditions, which had not been fully anticipated in the original program with Argentina, the authorities will be working to revise the government’s economic plan with a focus on better insulating Argentina from the recent shifts in global financial markets, including through stronger monetary and fiscal policies and a deepening of efforts to support the most vulnerable in society,” the statement said.

Argentina is grappling with an unprecedented economic crisis, with the country’s government taking dramatic steps to try to restore confidence in its free falling currency.

In an effort to shore up its plunging peso, the Central Bank of Argentina moved to raise rates for the fifth time since April on Thursday. But the world’s highest benchmark rates have done little to soothe rapidly deteriorating sentiment in Latin America’s third-largest economy, CNBC reported.

The bank sharply raised interest rates to 60% from 45% at an unscheduled meeting in the previous session, saying the move was in “response to the foreign exchange rate situation and the risk of greater inflation”.

The value of Argentina’s peso plunged more than 13% on Thursday, following a 7% slide a day earlier. This means that since the start of the year, the currency has fallen more than 108% against the US dollar.

The South American country’s recent flurry of rate hikes had been prompted by a sudden weakening in the peso after a drought hampered farm exports earlier in the year. A spike in energy prices and a resurgent greenback also worsened the situation as investors started to pull funds from emerging markets.

Investors are increasingly concerned Buenos Aires could soon default as it struggles to repay heavy government borrowing.

A number of emerging market countries, including Argentina, Turkey and Brazil, are feeling the impact as tighter monetary policy from the US Federal Reserve has boosted the dollar.

In a televised address on Wednesday, Macri said: “I know that these tumultuous situations generate anxiety among many of you ... I understand this, and I want you to know I am making all decisions necessary to protect you.”

Many people in Argentina blame the IMF for encouraging fiscal policies that escalated the country’s worst economic crisis in 2001. At that time, millions of middle-class citizens fell into poverty as the country struggled to recover, Telesurtv reported.

Despite signing a $50 billion standby financing deal with the IMF earlier this year, Macri is struggling to convince the markets that he can spur economic growth while cutting fiscal deficits and combating inflation.

Argentina has already agreed with the IMF to cut its fiscal deficit from 3.7% of gross domestic product last year to 2.7% in 2018 and 1.3% in 2019.

The recent slide in the peso was prompted by fears the government may have trouble meeting its 2019 bond obligations. Argentina has $24.9 billion in peso and foreign currency denominated debt payments next year.