• 13 hours Companies Want You To Pay To Keep Your Data Safe From Them
  • 19 hours Why Are Solar Investments Plummeting?
  • 2 days Workers Walk A Tightrope As Shutdown Puts Paychecks On Hold
  • 2 days Key Indicators Suggest A Recession Is Closer Than We Thought
  • 3 days Palladium Surpasses Gold As Demand Continues To Rise
  • 3 days Is Another Gold Rally On The Horizon?
  • 4 days Most Crypto Investors Don’t Know This Tax Loophole
  • 4 days How Tech Is Decentralizing The Energy Industry
  • 4 days Dissecting Europe's Massive Tennis Match-Fixing Scandal
  • 4 days This Gold Deal Could Be A Boon For The Mining Industry
  • 5 days 5 Companies That Could Win Big As The U.S. Legalizes Sports Betting
  • 5 days May Survives No-Confidence Vote Despite Huge Loss On Brexit Deal
  • 5 days U.S. Trade Deficit With China Grows To Record High
  • 5 days Big Oil Doubles Down On Blockchain Tech
  • 5 days What Top Financial Analysts Are Saying About Brexit
  • 6 days Billion Dollar Opportunity In The World’s Most Exciting Sector
  • 6 days Cash Is Now A $3-Trillion Safe Haven Bet
  • 6 days How Advertisers Are Forced Into Politics
  • 6 days Automakers Go All-In On Electric Vehicles
  • 6 days How Will The Government Shutdown Impact Gold?
Automakers Go All-In On Electric Vehicles

Automakers Go All-In On Electric Vehicles

Despite collapsing global automobile sales,…

Cash Is Now A $3-Trillion Safe Haven Bet

Cash Is Now A $3-Trillion Safe Haven Bet

Cash is back, at least…

Dissecting Europe's Massive Tennis Match-Fixing Scandal

Dissecting Europe's Massive Tennis Match-Fixing Scandal

Recently, 83 people were arrested…

Michael Kern

Michael Kern

Safehaven

Michael Kern is a newswriter and editor at Safehaven.com, Oilprice.com, and a writer at Crypto Insider. Michael has several years of experience covering cryptocurrencies, and…

Contact Author

  1. Home
  2. News
  3. Breaking News

IMF Rescues Argentina With Its Biggest Loan Ever

Buenos Aires

In what will be the largest-ever IMF loan to any country in the world, the International Monetary Fund (IMF) has granted Argentina a $50-million stand-by arrangement to stop the pain of a massive emerging market sell-off that threatens the country’s economic stability.

The first 30-percent tranche could be issued in a matter of days, Bloomberg reports, and none too soon: Argentina.

In May, the peso lost almost one-fifth of its value against the dollar in just two weeks amid the emerging market sell-off. Since the beginning of this year, it’s lost 20 percent of its value.

Argentina’s current account deficits took a dangerous hit.

Some might say President Mauricio Macri has been a bit too … relaxed about spending since he was elected in 2015, while at the same time embarking a major borrowing spree. Some might also say that he allows cronyism to flourish, and it’s not helping matters at all.

And the government has been fueling inflation by pressuring the central bank to buy more bonds with cash it doesn’t have—so it’s off to the printing press.

As Forbes put it, “Argentina has wrecked its currency time and again and seems on its way to doing so once more.”

In an interview with World Politics Review, Bruno Binetti, fellow at the Inter-American Dialogue, the “run against the peso was triggered by the rise in U.S. interest rates, which led to the devaluation of many emerging economies’ currencies against the dollar. Argentina was particularly vulnerable to this external shock …”

The peso is overvalued, exchange rates aren’t keeping up with inflation, and the country’s trying to cover a fiscal deficit of over 5 percent of GDP, Brunetti said.

But beyond that, he said, “financial markets penalized the peso due to a perceived lack of coordination in Argentine’s economic policy”.

That’s on Macri.

But from Macri’s perspective, the IMF’s biggest-ever backing package is a major vote of confidence in his rule.

"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, as reported by Bloomberg. “It’s very good news that the integration with the world allows us to receive this support." Related: ECB Signals An End To Its Stimulus Program

In the meantime, it isn’t just Argentina feeling the pain. Investors are taking down emerging markets with a vengeance right now.

South Africa’s rand lost 2 percent today, and Brazil’s real nose-dived, while the Turkish lira is fighting a major decline.

The MSCI index of emerging-market stocks today lost more than it has in three weeks.

(Click to enlarge)

Source: Bloomberg

But now comes the tit-for-tat, because IMF money comes with plenty of conditions.  The IMF is looking to see Argentina rebalance its fiscal position, noting that it welcomes “the authorities’ intention to accelerate the pace at which they reduce the federal government’s deficit, restoring the primary balance by 2020”.

In late May, Dujovne said the country’s 2019 fiscal deficit target of 2.2 percent of GDP would be cut in an effort tighten the belt a bit more. That same month, the government cut Argentina’s 2018 deficit goal to 2.7 percent of GDP from 3.2 percent.

The IMF also noted that it strongly supports “the redoubling of efforts to lower inflation” and “the central bank’s decision to adopt realistic and meaningful inflation targets”.

The international institution also hit out a cronyism, indirectly, saying that “A central plan of the authorities’ plan is to put in pace measures that will offer opportunity and support to those living in poverty and for the less well-off members of Argentine society.”

By Michael Kern for Safehaven.com

More Top Reads From Safehaven.com:

Back to homepage

Leave a comment

Leave a comment