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ECONOMY | 07-06-2018 20:47

Government agrees US$50-billion stand-by loan with IMF

The government has agreed a deal with the International Monetary Fund (IMF) for a stand-by loan of US$50 billion over a three-year period.

The government has agreed a deal with the International Monetary Fund (IMF) for a stand-by loan of US$50 billion over a three-year period.

The figure was higher than previous estimates, which had predicted the government would seek a deal worth between US$20-40 billion.

Central Bank Governor Federico Sturzenegger and Treasury Minister Nicolás Dujovne announced the details of the agreement at a press conference this evening at the Kirchner Cultural Centre in central Buenos Aires. From Washington, the IMF announced that the agreement would be subject to approval by its executive board, which will consider the Argentine government's economic plan in the coming days.

"The [Argentine] authorities have indicated that they intend to draw on the first tranche of the arrangement but subsequently treat the loan as precautionary," a statement from the organisation read.

"We have looked to the IMF to avoid a crisis," Dujovne told journalists at the CCK, adding that US$15 billion (30 percent) of the figure would be available immediately.

"We are engaged in the construction of a normal country. It is support for our program, with the goal of growing the economy and decreasing inflation and poverty," he said.

“There is no magic, the IMF can help but Argentines need to resolve our own problems,” he added.

The economy climbed 2.8 percent in 2017, but growth slowed after a crisis of confidence that resulted in the loss of over $10 billion of central bank reserves and saw the peso plunge by nearly 20 percent. 

Under the terms of the government, the government has set new inflation targets for the coming years and will seek to reduce the fiscal deficit to 1.3 percent of GDP next year, down from 2.2 percent previously.

President Mauricio Macri announced in May that Argentina would seek a financing deal with the IMF following the sharp devaluation of the peso and amid a tough global outlook.

The decision unsettled many Argentines, some of whom blame the IMF for introducing policies that led to the country’s economic implosion in 2001 and its record US$100-billion bond default in 2002. The crisis left one of every five Argentines out of work.

Macri argued that Thursday's deal was needed to avoid another economic implosion. The IMF deal "is very important starting point," Macri told reporters several hours before the loan was announced.

"To reduce inflation, the plan reinforces goals with a floating exchange rate and [it] strengthens Central Bank autonomy. Inflation targets are 17 percent for 2019, 13 percent for 2020 and 9 percent for 2021," Dujovne added, who Macri recently appointed economic coordinator of the government's economic policy.

"We are going to have increased inflation," Dujovne acknowledged.

There will be no inflation target for 2018, Sturzenegger confirmed. The government's original target for the year was 15 percent, although private estimates now put the likely figure at around 27 percent.

“I congratulate the Argentine authorities on reaching this agreement," said IMF Managing Director Christine Lagarde in a statement.

"As we have stressed before, this is a plan owned and designed by the Argentine government, one aimed at strengthening the economy for the benefit of all Argentines. I am pleased that we can contribute to this effort by providing our financial support, which will bolster market confidence, allowing the authorities time to address a range of long-standing vulnerabilities.

"As part of this support, both the IMF and the Argentine government intend to work together to ensure steps are taken, and the resources are fully available, to protect the most vulnerable in the population as economic reforms move forward," she added.

According to a report by Reuters, in a separate statement the Presidency said it had clinched agreements "for an additional US$5.65 billion from the Inter-American Development Bank, the World Bank and the CAF development bank over the next 12 months."

- TIMES/AFP/AP

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