Thursday, August 16, 2018

Argentina could draw up to $50 billion from IMF over 3 years

By on June 8, 2018

SAN JUAN – Argentina and the International Monetary Fund (IMF) staff have reached an agreement on a 36-month “Stand-By Arrangement (SBA) amounting to US$50 billion (equivalent to about SDR 35.379 billion or about 1,110 percent of Argentina’s quota in the IMF),” according to an announcement by the Washington, D.C.-based international organization.

The arrangement assures Argentina that the IMF “stands ready to provide foreign exchange or SDRs in accordance with the terms of the decision,” and although not a legal contract, it “will be subject to approval by the IMF’s Executive Board, which will consider Argentina’s economic plan in the coming days.”

Argentina must undertake policy actions as part of the agreed-upon economic program to reduce economic imbalances and achieve sustainable growth. The loan must be repaid in accordance with the schedule.

Argentina would borrow an initial amount “but subsequently treat the loan as precautionary,” according to Friday’s press release.

“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,” IMF Managing Director Christine Lagarde said in a statement. “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.”

She further explained: “At the core of the government’s economic plan is a rebalancing of the fiscal position. We fully support this priority and welcome the authorities’ intention to accelerate the pace at which they reduce the federal government’s deficit, restoring the primary balance by 2020. This measure will ultimately lessen the government financing needs, put public debt on a downward trajectory, and as President Macri has stated, relieve a burden from Argentina’s back.

“We also strongly support the redoubling of efforts to lower inflation, which we know eats into the foundation of economic prosperity in Argentina and is borne directly by society’s most vulnerable. In this vein, we endorse the central bank’s decision to adopt realistic and meaningful inflation targets and their commitment to maintain a flexible and market-determined exchange rate. We are also encouraged by the authorities’ commitment to ensure legal independence and operational autonomy for the central bank and to immediately put an end to central bank financing of the federal deficit.

“A central plank of the authorities’ plan is to put in place measures that will offer opportunity and support to those living in poverty and for the less well-off members of Argentine society. As a clear signal of these priorities, the authorities have pledged to maintain a floor on social assistance spending. They are committed to ensuring that spending, as a share of GDP, does not decline during the next three years. Additionally, if social conditions worsen, there are provisions to further increase the budget allocation for social priorities.

“Finally, I am particularly supportive of the efforts to level the playing field between Argentine men and women notably by introducing reforms in the tax code and social legislation. This is also consistent with the agenda that President Macri has underlined during Argentina’s leadership of the G20.

“In sum, I believe that Argentina’s reforms deserve the support of the IMF and the international community and I look forward to soon discussing Argentina’s request for support with the IMF’s Executive Board.”

The South American country reportedly has one of the highest inflation rates, but the deal comes amid protests against new austerity measures and ones blamed on the IMF in the early 2000s.

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