IMF completes second review of loan to Argentina

The executive board of the International Monetary Fund on Wednesday completed its second review of a three-year, US$56-billion stand-by financing deal for Argentina.

That step will allow the Mauricio Macri administration to draw another US$7.6 billion, bringing the total amount received from the IMF since June to about US$28.09 billion, the organisation announced in a press release.

IMF staff had given their go-ahead last month, but the executive board's approval was still necessary.

David Lipton, the IMF's first deputy managing director, said that thanks to the implementation of the economic programme the peso has stabilised and inflation has started to decline.

Lipton said that passage of the 2019 budget "has helped to solidify confidence in the authorities' economic reform plan and policy continuity."

Lawmakers last month approved an austerity budget for 2019 that aims to cut the primary deficit before debt payments to zero, down from 2.6 percent of GDP this year.

But Lipton warned that "the Argentine economy is still contracting and remains vulnerable to shifts in market sentiment."

Contraction

The IMF forecasts a contraction in GDP of 2.6 percent this year and 1.6 percent in 2019.

Lipton urged the Argentine authorities to pursue structural reforms to boost investment and productivity, to increase the employability of women, youth and lower-income workers, and to provide greater support to those in poverty.

Economy Minister Nicolás Dujovne wrote in a letter of intent addressed to and released by the IMF that "markets have been relatively calm over the past few months, a sign of confidence in the policy program we are implementing."

The Central Bank announced in September that it will adopt a floating exchange rate regime, meaning that it will intervene only by selling US$150-million worth of pesos a day when the currency drops below 34 pesos or rises above 44 pesos per US dollar.

An IMF official admitted that the sovereign risk for Argentina has increased the last couple of weeks and attributed the trend to end-of-the-year investment adjustments and also to increased uncertainty before the 2020 presidential elections.