Mauricio Macri
Mauricio Macri

Buenos Aires — The IMF will consider Argentina’s request to speed up disbursements from a $50bn credit line as the government seeks to restore investor confidence.

The IMF responded about nine hours after President Mauricio Macri surprised the nation by saying in a televised speech that Argentina needed the money to demonstrate it had enough cash on hand to fund the 2019 budget without going further into debt.

His statement, which suggested the IMF had signed off, was meant to reassure investors. Instead, it sparked confusion among traders who have complained about poor communication and disjointed plans. The peso plunged 7.3% to a record low.

Macri’s government has struggled in the past five months to convey a viable strategy to shore up the economy, cut budget and current account deficits, and tame inflation running at more than 30% a year. While analysts have praised moves such as obtaining the IMF credit line in June and raising interest rates to the highest in the world, there is also lingering suspicion that officials lack the political will to make the spending cuts and tax increases necessary to tame inflation and restore growth.

"What happened today with Macri’s IMF announcement is a very good example of how things that were supposed to help can backfire quickly if investors sense desperation from policymakers," said Tania Escobedo Jacob, a strategist at RBC Capital Markets.

The IMF said it would review the time frame for doling out the remaining funds from the loan and collaborate with the Argentinian government on a plan to bolster the economy.

"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," Christine Lagarde, the IMF’s MD, said on Wednesday.

Poor fundamentals

Argentinian officials had wagered that obtaining the IMF credit line in June would calm nerves and buy Macri’s almost three-year-old government some time to right the ship. Still, the currency sell-off has continued — it is down 45% in 2018 — threatening to push inflation even higher and throttle growth.

The peso is unlikely to change its basic trend and even if the IMF decides to speed up disbursements, the nation’s economic fundamentals remain poor, said Tsutomu Soma, GM for fixed-income trading at SBI Securities in Tokyo.

While the government said in a July presentation that its net financing needs for 2019 were $8bn, some Wall Street economists say the actual number may be as high as $20bn, depending on debt rollovers. Treasury minister Nicolás Dujovne told reporters that the government is working on a plan to chop its fiscal deficit so that it can reduce borrowing.

The extra yield investors demand to hold Argentinian bonds instead of US treasuries, a key gauge of investor sentiment, jumped to 725 basis points on Wednesday and has more than doubled in 2018, according to a JPMorgan Chase index.

The cost to insure the country’s bonds against default surged to a record.

The price of Argentina’s century bond slipped 1.6c to a record low 70.65c on the dollar on Thursday.

"People are losing faith that Macri can navigate these turbulent waters," said Jorge Mariscal, the chief investment officer for emerging markets at UBS Wealth Management. "I think for the most part he’s doing the right thing. He just needs to learn how to communicate better."

The government has already used many of the conventional tools available to try to restore faith. It raised interest rates to a global high of 45% in August. It changed leadership at the central bank, which intervenes in the peso regularly, raised reserve requirements for banks and rolled out a strategy to reduce short-term debt maturities. Macri also froze several infrastructure projects to meet the IMF’s fiscal demands.

Cabinet chief Marcos Peña said on Thursday he expected an agreement with the IMF in a few weeks and that Macri had announced a "political" understanding with the fund.

Bloomberg