Picture: ISTOCK
Picture: ISTOCK

Buenos Aires — Argentina’s economy minister, Dujovne Nicolas, heads to Washington on Monday for a hastily revised loan deal with the IMF to help revive South America’s second-largest economy.

Dujovne will need to outline a convincing austerity programme to restore investor confidence, which has plummeted along with the nation’s currency, analysts say.

The minister said at the weekend his mission is to "continue to progress" talks with the IMF "on additional disbursements in 2019".

The talks, scheduled for Tuesday, follow a surprise announcement by President Mauricio Macri last week that Argentina will seek faster disbursement of its $50bn credit line with the IMF. That set off alarm bells among investors, who are concerned Argentina will default on government borrowing, and triggered a run on the peso, which plunged 20% in two days before recovering slightly by Friday’s close. The currency has lost half its value against the dollar since January.

A first $15bn tranche of the loan has largely gone to propping up the peso in recent months. Argentina’s central bank hiked its baseline interest rate to 60% last week in a bid to stabilise the currency.

Ratings agency S&P Global Ratings said Macri’s government must now show clear steps to improve low investor confidence. "Exchange rate volatility, as shown by recent pressure on the Argentine currency, could jeopardise the effective implementation of economic adjustment measures, absent further steps to boost investor confidence," it said on Friday.

S&P sees hope in Macri’s austerity measures. His government has slashed energy subsidies and shed 95,000 public service jobs since January.

It suggested that IMF help, coupled with continued austerity measures, could help gradually reduce inflation, which is running at more than 20%.

The IMF said its goal was to "rapidly conclude these talks and submit the revised economic plan to the executive board". Spokesperson Gerry Rice said the IMF is "confident the strong commitment and determination of the Argentine authorities will help the country overcome the current difficulties".

However, analysts at Capital Economics warned in a report that "investor confidence is fragile", adding that failure to deliver a convincing austerity plan on Monday would trigger further turmoil.

The market’s response exposed the magnitude of the crisis of confidence in the Argentine government and its ability to pay off borrowing.

Dujovne is expected to provide details of the new proposals on Monday before heading to Washington for Tuesday’s the meeting with IMF officials.

Macri will be hoping to ride out a domestic storm from a public sector incensed at his austerity drive to maintain Argentina’s access to capital markets, from which it was excluded for over a decade.

However, Argentinians point to increasing food, transport and energy prices, saying they are paying an unacceptable price under Macri’s austerity programme.