Buenos Aires Times

economy ECONOMIC TURBULENCE

IMF's Lagarde on Argentina loan: 'We are close to finish line'

Rumours grow that Luis Caputo's resignation from Central Bank was due to 'a disagreement with the IMF over monetary policy.'

Tuesday 25 September, 2018
President Mauricio Macri arrives to speak at the General Debate of the 73rd session of the General Assembly at the United Nations on September 25, 2018 in New York.
President Mauricio Macri arrives to speak at the General Debate of the 73rd session of the General Assembly at the United Nations on September 25, 2018 in New York. Foto:Bryan R. Smith-AFP

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Topping off a day rife with economic drama, the head of the International Monetary Fund Christine Lagarde said tonight that her organisation was "close to the finish line" on a deal with Argentina.

As President Mauricio Macri became involved in seeking accelerated funding from a US$50-billion loan agreed with the IMF in June on the sidelines of the United Nations General Assembly in New York, the country's currency was hit by the news that Luis Caputo had resigned as Central Bank chief, to be replaced by Guido Sandleris. The peso lost 2.2 percent against the dollar in response.

"I had a very good meeting with President Macri. We are close to the finish line in terms of reaching a revised staff-level agreement between Argentina and the IMF, which will be subject to approval of our Executive Board," Lagarde wrote on Twitter, all but confirming heavy hints in Buenos Aires that the deal would be announced tomorrow.

Approval

The IMF seems to approve of the changes in the government's economic team, with spokesman Gerry Rice today expressing the desire to continue its "close and constructive relationship" with Argentina's Central Bank.

Rice said the IMF would work "intensely with the aim of concluding" talks over Argentina's request to bring forward disbursements of the remainder of its loan as soon as possible.

An initial US$15-billion tranche was received in June with a further US$3-billion due in November and the rest over the next three years.

The Central Bank turmoil took place against the backdrop of a strike as Argentines protested the loss of purchasing power brought on by the peso losing around 50 percent of its value against the dollar this year.

Many shops, banks and public offices were closed with public transport and taxis at a standstill.

Following Monday's mass demonstration organised by trade unions, streets were mostly calm on Tuesday with many people unable to get to work. Airports were also deserted with all flights in and out of the country cancelled.

'IMF disagreement'

The Central Bank stated in the morning that Caputo had resigned for "personal reasons," with the conviction that a "new agreement with the International Monetary Fund will restore confidence in the fiscal, financial, monetary and exchange situation."

Some analysts said there were already rumours on Friday that he would resign due to "a disagreement with the IMF over monetary policy," according to Argentine economist Gabriel Rubinstein.

Formerly chief of trading at JP Morgan and Deutsche Bank, Caputo is close to Macri and was finance minister before he was appointed president of the central bank in June.

Economist Fausto Spotorno said Caputo was never seen as a long-term fixture, though, and that "the government's priority is an agreement with the IMF."

"I don't know if the IMF requested he leave or if Caputo preferred to resign rather than take a different path to the one he was advising," said Management and Fit Institute chief economist Matias Carugati.  "But his departure is linked to the new IMF deal."

His replacement, Sandleris, is an economist who worked previously for the World Bank and Inter-American Development Bank. He was deputy finance minister before being named Central Bank president.

Sandleris was given a glowing reference by Finance Minister Nicolás Dujovne, who called him "a brilliant person" with whom Argentina would "start to win the battle with inflation."

Inflation is expected to hit 40 percent by the end of the year while the economy is predicted to shrink by 2.0 percent.

Crisis of confidence

A crisis of confidence beginning in April saw the value of the peso plunge, with Argentina negotiating its $50 billion bailout loan from the IMF.

But that failed to prop up the currency and Macri announced in August he would be seeking an accelerated disbursement of the remainder of the funds that were initially due to be transferred over a three-year period.

That sparked two days of damaging drops in the value of the peso, which lost 20 percent against the dollar.

Macri responded by announcing new, and unpopular, austerity measures, including halving the number of government ministries and restoring taxes on grain exports.

The central bank hiked interest rates to a world-high 60 percent and the peso has remained largely stable since its sudden crash in August.

But restoring faith in the peso has proved difficult, with skeptical Argentines believed to be holding US$300 billion outside of the country's fiscal circuit, either in cash or abroad, in a bid to protect their assets from the peso's woes.

- TIMES/AFP

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