IMF Approves US$56.3 Billion Loan Expansion to Argentina

The International Monetary Fund approved a US$56.3 billion loan expansion to Argentina on October 26. According to MarketWatch, President Mauricio Macri agreed to a $50 billion financing package from the IMF in June, which had the stated aim of keeping the peso from falling in value. However, the continued drop in the currency forced President Macri to renegotiate the agreement.

Argentina’s economy is the second largest in South America, but Al Jazeera reports that the country has recently had to grapple with a falling currency, rapid inflation, and a recession triggered by a drought in early 2018. In a letter to the IMF, the government wrote that they expect inflation in 2019 to reach upwards of 40 percent in January before falling quickly, and added that they are anticipating a decrease in GDP somewhere between a two and three percent decrease, reports Reuters.

According to Bloomberg, the deal with the IMF is a three-year lending agreement that intends to help stabilize the Argentinian economy by reassuring investors and granting the government more flexibility. Argentina received US$15 billion in June and will receive another US$35.8 billion through the rest of 2018 and 2019, with remaining funds slated for 2020 and 2021.

As reported by Reuters, an IMF official explained, “We expect the recession to continue for the rest of 2018 and into the first quarter of 2019, with a recovery to begin in the second quarter of next year.”

In exchange, the government has promised to balance the budget in 2019, a year earlier than planned. Analysts say this move could cost President Macri his re-election. Since the recession, Macri has instituted a number of economic stabilization measures, such as reducing the number of government ministries and increasing export taxes. He has also outlined a series of spending cuts totaling about US$10 billion across a number of sectors. The new IMF loan was announced the day after Argentina’s lower house of Congress passed a widely unpopular austerity proposal, which is now headed to the Senate where it is also expected to pass.

Argentinians have protested these measures, and many view the government’s involvement with the IMF as problematic. A poll conducted by the firm D’Alessio IROL/Berensztein in early May showed that 75 percent of respondents said that they did not support the government seeking assistance from the IMF, according to Reuters.

In Argentina, the institution is still widely associated with the 2001-2002 financial crisis, which many attribute to IMF policy prescriptions enacted by the government. When the agreement was first announced in May, Representative Agustin Rossi said, “Every time Argentina turns to the International Monetary Fund it has been followed by very bad news for Argentina.”

The peso has held steady since the announcement of the deal, but it is still much weaker than it was earlier this year. The IMF director Christine Lagarde is optimistic that the agreement, as well as the proposed budget, will “be key to restoring confidence.”