President Mauricio Macri’s publicity machine is in overdrive and several key meetings this week have shored up internal support for his government's economic direction. On Friday, the Central Bank sold US$1.1 billion in reserves and the dollar surged passed 24 pesos, ending the day at 23.70.
The fall-out over the slump in the value of the peso and the Macri government’s sudden announcement that Argentina will seek a line of finance with the International Monetary Fund (IMF), finds the head of state cornered, at least according to one major European publication, which also described the peso as in a state of “collapse”.
Macri’s Cambiemos (Let’s Change) allies are united around his leadership but are aware of the gaping mistakes in the government’s management of the current crisis — a self-inflicted crisis which, despite the weight of a potential sudden stop, is also political.
“I totally support this preventative measure, which has to do with an eternal game of devaluation- non devaluation (of the peso).
"There are players who want a devaluation who are operating overseas”, said lawmaker Elisa Carrió, the leader of the Civic Coalition party, which forms the ruling Cambiemos coalition with the UCR Radical Party and Macri’s own PRO.
Other coalition partners have made it well known to the president, both publicly and privately, that Cambiemos' middle-class voter base cannot continue bearing the brunt of his ambitions to increase economic growth at the expense of combating inflation.
The National Cambiemos Workgroup, which met on Monday, “ratified” the government’s “political, economic and social pathway, while admitting to difficulties in obtaining the results that Argentines deserve”, UCR president and Governor of Mendoza province, Alfredo Cornejo, told reporters.
Macri also met with his inner circle — including Buenos Aires governor María Eugenia Vidal and City Mayor Horacio Rodríguez Larreta — promising the continued financing of big public works projects in their districts. Cabinet Chief Marcos Peña also attended, accompanied by his highly-questioned number twos Mario Quintana and Gustavo Lopetegui.
In a separate and tense meeting on Thursday, Macri huddled with so-called "friendly governors" with whom there was agreement that an IMF deal should not have to pass Congress. On Friday, he met with leading business people at the Olivos presidential residence before then gathering with his economic team to devise a plan forward.
For his part, Treasurer Nicolás Dujovne continued Friday in Washington to hash out a “stand by” financing deal with the IMF. Economists agree that the prospects of Argentina securing an IMF loan free of major austerity demands are remote.
The talks with the Washington-based lender come 17 years after the country last defaulted on its debt and 12 years after it cut ties with the IMF.
Undoubtedly this week’s main event was Macri’s sudden appearance on television screens around midday Tuesday to announce, in a virtual national broadcast: “Faced with his new situation I’ve decided to begin conversations with the IMF to grant us a line of financial support. A few minutes ago I spoke with (IMF Managing Director) Christine Lagarde and she confirmed to me that as from today we will be working on an agreement.” This announcement was the first Argentine request for an IMF loan since 2003 (by Néstor Kirchner in the first months of his presidency).
IMF chief Christine Lagarde said she is ready to aid Argentina and wants talks on a financing package to be finalised quickly.
“I stressed my strong support for Argentina’s reforms to date, and expressed the Fund’s readiness to continue to assist the government”, she said in a statement following her meeting with Dujovne.
Dujovne also met Thursday with US Treasury Under Secretary for International Affairs David Malpass, who “reiterated strong support for the Macri administration’s market-oriented reform programme”. Treasury said in a statement that it welcomed the talks with the IMF. US support is key since it holds veto power in the IMF.
Argentine government officials have not said how much they are requesting, and a final deal could take at least a month, some suggest.
IMF stand-by loans last for up to three years, but more usually last 12-24 months. They require regular reviews by IMF staff to make sure the government is following through on reform commitments and meeting targets for things such as spending cuts and pension reforms.
As US interest rates rise, investors in recent weeks have been fleeing Argentina, driving up demand for US dollars, and driving the peso down.
Attention is also now turning to the Argentine Central Bank, which bought some $ 30 billion in short-term Lebac notes, as yields shot as high as 115 percent.
Half of all outstanding Lebacs expire on Tuesday – some $670 billion worth – which the Central Bank has been buying in an effort to avoid further damage to the peso. Speculators have been selling en masse as Central Bank Governor Sturzenegger gobbles up everything that comes his way. Tuesday’s sale will be closely watched.
The country's Central Bank has burned through US $8 billion in reserves in a week to support the currency, leaving it with about $55 billion. It also raised the benchmark interest rate to 40 percent to try to contain the peso’s decline.
Turning to the IMF is a risky move for Macri, given the bitter history the country has with the Washington-based lender, and the negative views on the conditions the fund might require.
Argentines spent much of the week expressing fear about a return to the type of intervention the entity had on the country’s economic policies in the 1990s, while opposition political parties have already shown their willingness to exploit that fear.
On Wednesday, a united opposition in the Lower House took the first steps towards blocking further increases in utility prices. Deputies approved a bill to roll back electricity, gas and water pricing to the levels of six months ago, by a 133-94 vote.
As a consolation prize the government obtained approval of its capital market and productive financing legislation – bills freeing various financial services, which are seen as a positive signal to the IMF and (in a slightly longer term) crucial to promoting Argentina from a frontier to an emerging market.
Meanwhile, unions, social and political groups gathered outside Congress on Wednesday evening to protest the government’s decision to sign with the IMF.
“Today we see the ghost of (Domingo) Cavallo in the form of his best disciples”, said Teamsters’ Union boss Pablo Moyano whose union marched outside Congress “to support those lawmakers who have come to defend the interests of the Argentine people”.
In addition to the weak peso, Argentines are struggling with double-digit inflation, which hit 24.8 percent last year. The government has set an inflation target of 15 percent, which it insists will not change. The IMF is forecasting a rate of 19 percent this year.