Heckled on the markets, which Argentina calls the IMF to the rescue

The argentine President Mauricio Macri, at a press conference in Buenos Aires, on 10 April 2018 (Photo by EITAN ABRAMOVICH. AFP)

Return to the box IMF for Argentina, 17 years after its default in 2001: the third largest economy in Latin America has begun discussions with this organization to get funding so that its peso is devaluing.

“As a preventive measure, I decided to start discussions with the international monetary Fund so that it gives us a line of financial support”, has announced on Tuesday the chairman Mauricio Macri during a televised speech.

“We take the only possible path to exit the block, seeking to avoid a major economic crisis that would make us go back and cause trouble at all,” he added.

Started again in 2017 on the path of growth, Argentina had hoped this year to contain inflation to 15%, but the devaluation will undoubtedly boost the price increase.

Over a month, the peso has shrunk to about 10%.

Mauricio Macri, has been in power since the end of 2015, has indicated that they have already had an initial conversation with the director of the IMF, Christine Lagarde.

“Discussions have been initiated on the way to work together to strengthen the economy of Argentina and will be held very soon,” assured Ms Lagarde in a press release.

“We can’t yet disclose the amounts (as requested), but we agreed on a financial support from the IMF in Argentina”, stated the minister of Economy, Nicolas Dujovne, in a press conference.

According to the agency Bloomberg, the Argentine would have requested a credit of us $ 30 billion from the international body.

“It is necessary to take into account the fact that we are talking with an IMF very different from the one we experienced 20 years ago”, according to the minister.

17 years ago, more exactly, Argentina had been shaken by the worst financial crisis in its history, which was to fall successively four presidents in a week, and led the country in default of payment, a true national trauma.

In January 2006, Argentina had repaid its last credit from the IMF, to $ 9.6 billion.

– “New global scenario” –

The Argentines are wary of the IMF and they are many to accuse him of having endorsed the economic policies of the 1990s, which led to the bankruptcy of the 3rd economy of Latin America.

For the economist Marina Dal Pogetto, the recourse to the IMF, “is not a good new for Argentina”, “politically, this decision will not be without internal cost”.

“During the first two years (mandate, 2016 and 2017, we held an international context that is very favourable, but the context is changing” and “we are among the countries in the world most dependent on external funding,” justified Mr Macri.

The argentine peso, which at the opening of markets on Tuesday fell of 4.61% 23,41 pesos for a dollar, came back and was finally transferred to 2.66% on Tuesday, 22,94. The stock fell 3.85% on Tuesday.

The currency had tumbled by nearly 5% last week, under the effect of rising rates on u.s. Treasury bills, forcing the central Bank to raise its key rate to 40%, the highest level in the world.

But a rate as astronomical can affect the growth of the country, the third-largest economy in Latin America behind Brazil and Mexico, which had picked up in 2017 to 2.8%, after a fall in GDP of 2.3% in 2016.

After this shock therapy, as a measure to arrest the decline of the peso came into effect on Monday: it will force the banking institutions to re-market a portion of their reserves in greenbacks, about $ 2 billion.

By raising its key rate, the central Bank seeks to convince the Argentines put their money rather than buying the dollar, safe-haven currency when inflation is high. This would stop the devaluation of the peso.

The country is facing high inflation, 24.8% in 2017, it expects to reduce that to 15% this year, but the IMF is more pessimistic, expecting to 19.2 per cent.

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