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sandensea

(21,529 posts)
Tue May 8, 2018, 02:18 PM May 2018

Argentina in talks with IMF for $30 billion bailout

Argentina has asked the International Monetary Fund (IMF) for financing to help stem a five-month-rout in the peso that has led to a surge in interest rates and threatens to derail its economic recovery.

The government is reportedly seeking a flexible credit line worth $30 billion. An IMF spokesman didn’t immediately reply to a request for comment.

President Mauricio Macri announced the talks in a televised address earlier today in order to stem a renewed run on the peso - but without mentioning how large the line was.

“This will allow us to face the new global scenario and avoid a crisis like the ones we have faced before in our history,” Macri said.

The speech was the first time that Macri spoke to the country after the central bank abruptly raised the benchmark interest rate three times in 10 days, from 27% to 40% - the highest among major economies. The currency has plunged more than 18% this year, dragging down local bonds and stocks.

Seeing red

Behind the weakness is growing concern that both inflation (26%) and deficits are spiraling dangerously high.

A record 225 billion-peso ($24 billion) budget deficit Macri inherited in 2015 grew in two years to 569 billion pesos ($34 billion), as steep corporate tax cuts took effect. They are up another 30% in the first quarter due to a doubling in interest payments.

Higher interest payments are in turn due to heavy borrowing reliance on high-yield LEBAC notes, which, despite paying 38%, are being unloaded for dollars to be wired overseas - a variant of carry-trade known locally as the “financial bicycle.”

Rolling back protectionist measures has meanwhile led to a record, $8.5 billion trade deficit and a doubling in the country's historically problematic current account deficit to $30.8 billion, or 4.9% of GDP.

The bailout reportedly requires steep cutbacks in public works, subsidies, and pensions - but no corporate or wealth tax increases.

A similar, $38 billion “bulletproof” IMF-led bailout in December 2000 was followed by collapse a year later as both Argentine and foreign investors largely used the funds to finance capital flight.

At: https://www.bloomberg.com/news/articles/2018-05-08/argentina-said-to-request-30-billion-imf-flexible-credit-line



The IMF's Christine Lagarde and a disconsolate Macri during a recent meeting. The IMF has been one of his right-wing administration's most prominent cheerleaders.
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