Argentina intends to ask the International Monetary Fund to increase a disbursement planned for later this month by an unspecified amount, a senior government official said after the Central Bank was forced to devalue its official exchange rate by 18 percent.
The peso’s sharp devaluation on Monday was all but unavoidable after investors, caught off guard by the unexpected primary victory of outsider candidate Javier Milei, pushed the currency to record-low levels in parallel markets. Argentina’s Central Bank is running out of reserves to support the peso in the foreign exchange market.
The decision to weaken the official exchange rate to 350 pesos per dollar, compared with Friday’s closing price of 287 per dollar, was made by the government to pro-actively address currency pressures stemming from Sunday’s vote upset, the official said, asking not to be named discussing ongoing talks with the Fund.
The IMF has agreed to give Argentina as much as US$10.8 billion in loans for the rest of the year as part of a refinancing agreement brokered by Economy Minister Sergio Massa, who’s also running for president in the October 22 election. The first payment of US$7.5 billion is expected by the end of August, after approval of a staff-level agreement by the Fund’s executive board.
President Alberto Fernández’s government had been resisting to pressures for a major currency devaluation to avoid fuelling even faster inflation in the run-up to presidential elections. Consumer prices are already rising at more than 115 percent a year.
Yet the official said that the government expects pass-through effects from Monday’s devaluation to be contained, and perhaps even milder than in previous occasions.
Markets had been bracing for a devaluation of no less than 20 percent for the past few weeks. The gap between the official and parallel rates remains be wide, signalling another adjustment will be needed down the line.
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by Silvia Martinez, Bloomberg
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