Mauricio Macri. Picture: REUTERS
Mauricio Macri. Picture: REUTERS

Buenos Aires — The International Monetary Fund’s (IMF’s) executive board approved a $56.3bn credit line for Argentina, clearing the way for the embattled South American economy to receive a larger amount of funding at a faster pace than originally negotiated.

The board’s sign-off Friday ratified a revised agreement announced in September. Under the new deal, Argentina will receive about $35.8bn throughout the remainder of this year and all of 2019, representing nearly a $19bn increase from the original arrangement negotiated in June. It already received $15bn in June. The remainder of the funds are slated for 2020 and 2021.

South America’s second-largest economy has been battered by a plunge in its currency, surging inflation and prospects of back-to-back years of recession. In exchange for the funds, Argentine President Mauricio Macri has pledged to balance the government budget in 2019, a year earlier than previously expected.

That will  be no small task for policymakers targeting a fiscal deficit of 2.6% of gross domestic product this year, and some analysts say that much austerity could risk Macri’s re-election chances.

Under the revised agreement, all of the funds will be dispersed by the IMF, and each installment will be subject to the board’s approval. The front-loaded payment all but guarantees Argentina will not have to tap international capital markets until after the 2019 election, which may alleviate concerns about the country’s fiscal deficit.

Halting a slide

The deal has also revamped Argentina’s monetary policy. The central bank implemented a currency band, allowing the peso to float between about 34 to 44 pesos to the US dollar. The bank is also conducting daily sales of 7-day notes to remove excess cash in the market in order to tackle inflation.

Macri first turned to the IMF in May when economic concerns ballooned and triggered a currency crisis. Critics in Argentina blame the IMF for its role in the nation’s 2001 default and argue the current deal is terrible, while possible contenders for the 2019 election are already saying the next government should renegotiate it.

Still, there are signs the agreement has halted a slide in investor confidence. The peso is up more than 12% in October, on pace for its best month since 2003. The yield on the government’s 100-year bond is down from its peak in early September. The difference in yield between Argentine bonds and 10-year US Treasury notes has also come down over the same period.

Bloomberg