IMF MD Christine Lagarde. Picture: REUTERS
IMF MD Christine Lagarde. Picture: REUTERS

Buenos Aires/Washington — Argentina secured a $50bn stand-by arrangement from the International Monetary Fund (IMF) to help restore investor confidence as the government takes aim at double-digit inflation and a widening budget deficit.

The rescue programme’s size, which would run for 36 months, is the largest ever in IMF history, although it will depend on how much the government taps. It comes amid an emerging-market sell-off that has shaken developing economies around the world, including Brazil, Turkey, Indonesia and Mexico and has forced central banks to raise interest rates.

Officials are worried about the risk of contagion amid rising US interest rates and a strong dollar. With the Federal Reserve tipped to raise rates when it meets next week, central bank governors of India and Indonesia this week called on the Fed to be mindful of its actions.

Of the economies that have been hit hardest, Argentina tops the list. It has indicated it plans to draw on the first tranche of the programme, after which it would treat the loan as precautionary, the government said in a statement.

"The amount we received is 11 times Argentina’s quota, which reflects the international community’s support of Argentina," treasury minister Nicolas Dujovne said in Buenos Aires. "It’s very good news that the integration with the world allows us to receive this support."

Argentina may see 30% of the funds a day or two after the IMF’s June 20 board meeting.

As part of the agreement, the country will now target a fiscal deficit of 1.3% of GDP in 2019 and 2.7% in 2018. The previous targets were 2.2% and 3.2%, respectively. A new inflation target of 17% is set for 2019.

"This is a plan owned and designed by the Argentinian government, one aimed at strengthening the economy for the benefit of all Argentines," IMF MD Christine Lagarde says in the statement.

Disruptive movement

Argentina’s government was forced into the talks with the IMF in May after three central bank rate hikes pushed borrowing costs above 40%, but failed to halt a plunge in the currency. The peso has lost 25% against the dollar so far in 2018 to trade at 24.9850 on Thursday.

President Mauricio Macri initiated talks with the IMF on May 8 — a decision that could cost Macri crucial votes in next year’s presidential election. The IMF is unpopular in Argentina and blamed by many citizens for the nation’s historic debt default in 2001 and the ensuing economic crisis.

Central Bank of Argentina president Federico Sturzenegger said the bank would still intervene in currency markets in times of "disruptive movement". The central bank would not target inflation this year, he said. The government has agreed to send a bill that gives the central bank more autonomy, although details on the timing were scant.

The economy might expand 0.4%-1.4% this year, the treasury minister said.

"We’re convinced that we’re on the right track, that we managed to avoid a crisis, gather support for the programme we already had and that has been in place since December 2015, which looks to build a normal economy, reduce poverty and protect the vulnerable," Dujovne said.

Bloomberg