Tuesday, July 14, 2020

ECONOMY | 04-09-2018 17:01

Dujovne begins talks with IMF in Washington to speed up crisis loan

Minister to begin talks with IMF chief Christine Lagarde, who has signalled a willingness to accelerate disbursement of a US$50-billion loan agreed to in June.

As US President Donald Trump expressed "strong support" for Argentina and President Mauricio Macri on Tuesday, Treasury Minister Nicolás Dujovne was seeking the backing of the International Monetary Fund for the government's bid to tackle a debilitating economic crisis.

On Monday morning, Macri has announced plans to slash the country's bureaucracy and raise taxes on exports to calm battered financial and currency markets and get the economy back on an even keel.

Dujovne was in Washington today to begin talks with IMF chief Christine Lagarde, who has signalled a willingness to accelerate disbursement of a US$50-billion loan agreed to in June.

The peso has lost half its value against the dollar this year, hampering government efforts to get inflation under control. Argentina has already used a first US$15-billion tranche of the three-year line of credit, mainly to prop up its currency.

Analysts, however, have warned that failure to reset the terms of the IMF loan would be costly.

"Failure to secure further IMF funding or fiscal slippage before large debt repayments due in November would make default a very real possibility," said Capital Economics in a note.

Andrés Abadia of Buenos Aires consultancy Pantheon said the government's austerity measures "should be seen as a positive, but market confidence in Argentina remains fragile."

"The meeting with the IMF will probably help to have a clearer picture of the country's prospects."

The Washington talks come a day after Macri announced he is slashing the number of government ministries by half and restoring a tax on booming grain exports to bring deficits under control. The move signalled the abandonment of the so-called 'gradualist' approach to reducing inflation by the market-friendly president, who was elected in 2015.

"We must move a lot faster," said Marci in a televised address. 

Macri, who was elected on a commitment to economic reform, appealed to rich exporters to do their bit.

"We know that this is a bad tax, but I have to ask them to understand that it is an emergency and we need their contribution."

At the current exchange rate, the move would put an extra US$7.1 billion in state coffers.


Argentina's soaring inflation rate – expected to close the year at more than 30 percent – has left many struggling, and hundreds took to the streets in noisy protests in and around the capital late Monday.

"We are utterly outraged," said retiree María Eugenisa, at one night-time demonstration in which around 100 people banged pots and held 'No to the IMF' banners.

"It was an over-acted, rehearsed speech, that doesn't take into account the disaster they have created because they impoverished us and they send the money abroad," she said.

Another retiree, Liliana Mayoral, said she was fed up with austerity.

"We had to go out [and protest] because if you don’t, you'd die from an ulcer. Something must be said, something must be done and the noise, besides everything, is therapeutic, not just an expression."

Twelve of Argentina's 22 government ministries will be closed or merged under the measures, including two key portfolios, Health and Labour.

Santiago Ponce, a Labour Ministry worker, said slashing the government was a bad sign.

"Halving ministries implies a really dire situation for the public administration and the state. They are reducing the state, they are shrinking it, the state is losing its power to regulate," he said.

Argentina has already pledged to cut its budget deficit to 1.3 percent of GDP in 2019, but at a press conference prior to leaving for Washington on Monday, Dujovne said it would go further next year and eliminate its primary deficit – its borrowing needs before debt servicing.

"In 2019, we want to reach primary fiscal equilibrium, and by lowering the deficit we will lower our need to issue debt," the minister said. 

The current deficit target for 2018 is 2.7 percent of GDP.


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