Argentina asks for early release of IMF funds, peso hits new low – Business Insider

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Argentina asks for early release of IMF funds, peso hits new low – Business Insider


Argentina’s President Macri pauses during a news conference at the Olivos Presidential Residence in Buenos Aires
Thomson Reuters

By Hugh Bronstein and Jorge Otaola

BUENOS AIRES (Reuters) – Argentina’s peso touched a record low 32 per U.S. dollar on Wednesday after President Mauricio Macri said his government had asked the International Monetary Fund for early release of funds from the country’s $50 billion standby deal.

The currency has weakened more than 42 percent in 2018. Investors are concerned that with high inflation, a weak economy and fallout from a global selloff in emerging markets, Argentina may have problems meeting its debt obligation in 2019.

“We have agreed with the International Monetary Fund to advance all the necessary funds to guarantee compliance with the financial program next year,” Macri said in a televised address. “This decision aims to eliminate any uncertainty.”

Argentina’s central bank sold $200 million of its reserves in two currency auctions on Tuesday aimed at stabilizing the peso, which nonetheless weakened to a record close of 31.50 per dollar. Traders said another auction with $300 million in reserves on offer was expected on Wednesday.

“Over the last week we have seen new expressions of lack of confidence in the markets, specifically over our financing capacity in 2019,” Macri said.

Central bank says it has sold $12.881 billion in the foreign exchange market this year as monetary policymakers try to stabilize the currency. The government says it expects the country’s economy to contract 1 percent in 2018 but grow by at least 1.5 percent next year.

“Guaranteeing 2019 financing will allow us to restore confidence and return to a growth path as quickly as possible,” Macri said.

Macri sealed a standby IMF financing deal in June that reduced the need for costly bond market funding and briefly steadied the peso. His government has since announced more than $2 billion in budget savings, a process he promised to continue.

“We will accompany the IMF support with all necessary fiscal efforts,” said Macri, who was elected in 2015 on an open-markets platform after eight years of deep government intervention in the economy under previous President Cristina Fernandez.

Ahead of an expected re-election bid next year, Macri has seen his popularity fall after reducing retirement benefits and cutting utility subsidies that people had grown accustomed to under Fernandez.

Lowering subsidies was aimed at reducing Argentina’s fiscal deficit. But the move also pumped up consumer prices by raising household water and heating bills. Twelve-month inflation was clocked at an unnerving 31.2 percent in July.

“I know that these tumultuous situations generate anxiety among many of you,” Macri said. “I understand this, and I want you to know I am making all decisions necessary to protect you.”

(Reporting by Hugh Bronstein and Jorge Otaola; Editing by Bill Trott)

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