Demonstration in Buenos Aires on may 14, against the rise in prices and the negotiations with the IMF (Photo by Eitan ABRAMOVICH. AFP)
Argentina has applied a shock treatment to halt the fall of its currency, as the considerable rise in interest rates and the sale of foreign exchange reserves to support the course, but the peso has lost 19% of its value in 45 days.
On Monday, he declined 6.16% at the opening.
The race-to-the dollar continues on the financial centre of argentina in spite of the attempts of the central bank to curb the phenomenon by raising the reference interest rate to 40%.
This new drop in the peso comes at the eve of an important deadline: the holders of the letters of credit, Lebacs, issued by the central Bank of the republic of argentina (BCRA), may from 15 may to demand their regulation, which represents potentially $ 25 billion.
The international monetary Fund (IMF), called to the rescue by Buenos Aires on the 8th of may, will discuss Friday the request for help made last week, announced on Monday that Gerry Rice, spokesperson of the institution.
“The teams from the IMF are continuing their discussions with the authorities of Argentina with a view of a support program of the IMF (…) A meeting of the executive committee of the IMF is scheduled for Friday, may 18,” he said in a written statement, noting an “informal meeting” for a plan of financial assistance.
The IMF is not expected to announce an agreement on Friday.
Argentina has made a request for a “confirmation agreement” (or Stand-By agreement). This type of loan allows the Fund “to respond quickly to the needs of external financing for the country and support policies to get out of situations of crisis and restore sustainable growth”, according to a factsheet of the IMF.
The argentine authorities and the IMF must now agree on the term of the loan and its amount.
The last significant deterioration of the peso goes back to the end of 2015 (approximately 30%), when the centre-right government of the president, Mauricio Macri, has abolished exchange controls, introduced in 2011 by the ex-head of State Cristina Kirchner, and implemented a policy of a floating exchange rate.
– Rate at 50%? –
On Monday, the dollar was trading against 25,50 pesos. In the 1990s, the peso was at parity with the dollar. In early 2013, the Argentine had to pay five pesos to buy a dollar.
The argentine government just to stop the inflation, 25% in 2017, while its goal was to contain at least 20% in the last year. As a result, the Argentines lose confidence in their currency and buy dollars, a traditional safe-haven currency in the 3rd economy in Latin America.
Economists argentines believe that the BCRA will bring to 50% its reference rate, to persuade investors to opt for investments in peso.
The central Bank estimated that capital flight has reached $ 35 billion in 2017, because of the savings in foreign currency outside of the banking circuits, of the departure of investment funds, the trade deficit and the money spent abroad by tourists in argentina.
Mr. Macri received the support of the director of the IMF, Christine Lagarde, and, on Monday, the us president, Donald Trump.
The argentine president has requested assistance from the IMF last week and has sent to Washington his Economy minister, Nicolas Dujovne, to engage in conversations with the international institution to obtain a loan.
According to the argentine press, a significant reduction in the budget deficit will be in balance and the Fund could unlock $ 30 billion.
The fall of the peso has led to a drop in the polls, the argentine president. According to a study by the Centre for the study of public opinion (CEOP), only 37% of Argentines have a good opinion of Mauricio Macri, the survey the worst since his election in late 2015.
“It is necessary to take into account the fact that collective memory feeds on bad memories associated with the dreaded IMF,” stresses Roberto Bacman, director of the CEOP, in reference to the last program of the IMF, which Argentina has brought the country to the economic crisis of 2001 and in default of payment.