Argentina, IMF: Bailout credit line increased amid economic crisis

Argentina’s
President Macri arrives for a news conference in Buenos
Aires
Thomson
Reuters

• The International Monetary Fund revised a standby
  agreement with Argentina.
• Buenos Aires will now receive a $57 billion credit
  line, expanding the largest in IMF history.
• But things may get worse before they get better —
  economists see the economy falling into a recession this
  year.

Expanding what was already the largest bailout in its history,
the International Monetary Fund said it will raise Argentina’s
$50 billion credit line to $57 billion in an attempt to stem a
crisis that has roiled Latin America’s third-largest
economy. 

The revised standby agreement, which still needs approval from
the executive board, is “aimed at bolstering confidence and
stabilizing the economy,” IMF Managing Director Christine Lagarde
said Wednesday in a joint statement with Argentine Economy
Minister Nicolas Dujovne.

Officials had been renegotiating terms since last month,
when President Mauricio Macri asked to speed up payments in the
original agreement that was reached in
June. 
Argentina will be required to fulfill
certain stipulations under the agreement, which would need
congressional approval by way of the 2019 budget.

The Fund will cover a significant portion of Argentina’s
financing through next year, Moody’s ratings agency said in
a statement,
and reduce the need to tap international capital markets before
the country holds presidential elections in October
2019.

The government has been hammering away at efforts to reduce its
debt, which economists predict will reach 70% of gross
domestic product next year. Macri and his finance
minister, Nicolas Dujovne, rolled out economic reforms earlier
this month, including stiff spending cuts and export tax
increases.

But balancing the budget may prove difficult for Macri as
elections near. With an approval rating that his dipped below 40%
this year, there’s a possibility the conservative,
whose campaign focused on free-market reforms, may not be
re-elected. 

Economists are expecting the country to fall into a recession
this year. Gross domestic product fell sharply between April and
June, marking the first economic contraction in more than a year,
and is expected to continue to slide in coming quarters. 

“We’ve pencilled in a fall in GDP of 4% over this year as a
whole,” Edward Glossop, an economist at Capital Economics, said
in an email. “It’s probably too soon to say how far GDP will fall
in Q3.”

On Tuesday, Argentina’s labor unions called a nationwide strike
to protest austerity measures and economic conditions. Many
citizens also spoke out against involvement with the
Fund, the
Associated Press reports, which was criticized for its
involvement in Argentina’s 2001 crisis. 

The Fund announcement failed to calm rattled investors,
with the peso
shedding more than 1%. 
Even after Argentina’s
central bank raised its benchmark interest rate to 60% last
month, the peso remains
 the worst-performing currency of
2018.

While the Fund
expects the economy to stabilize by the end of the year and
begin a recovery as soon as 2019, some analysts are remaining
cautious. 

“The worsening of the situation in Argentina despite the
rate hikes and government efforts to restore market confidence
confirms our view that the situation is far from being solved,”
Craig Chan of Nomura wrote in a recent research note.