The International Monetary Fund (IMF) supports Argentina with a financial aid of up to 50 billion dollars (44 billion euros). The credit agreement has a term of three years and must still be approved by IMF Supervisory board, Argentine Government and IMF shared in Buenos Aires.
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In return, President Mauricio Macri’s government is committed to reducing budget deficit significantly faster. In year 2020, a balanced primary budget should be reached between government revenues and expenditure, said Finance Minister Nicolás Dujovne. The primary balance does not take into account debt service for loans.
The background to application by Argentine Government is also decline of national currency. As in or emerging markets, investors withdraw ir money. In addition, re are or economic problems and high inflation. With a credit agreement, IMF helps countries in an economic crisis to overcome balance of payments problems.
The IMF chief Christine Lagarde welcomed agreement. She said that plan was designed by Argentine government “to strengn economy for benefit of all Argentines”. She is pleased that IMF can make a contribution by providing financial support that strengns market confidence and allows Argentina to eliminate vulnerabilities.
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The Argentine peso lost about 20 percent of its value to dollar in May. In an attempt to curb devaluation, Argentine central bank lost around 10 billion dollars, almost 20 percent of foreign exchange reserves. Foreign investors moved ir peso-based funds out of country in short term after US Federal Reserve had raised its key interest rate. A persistent drought that affected Argentine agricultural exports, and rise in international oil prices also put pressure on public finances, said Finance Minister Dujovne.
2017, Argentina’s primary deficit, adjusted for debt service, was 3.9% of economic output. The first planned reduction to 3.2 per cent for 2018 was accelerated to 2.7 per cent after agreement with IMF.
The budget cuts are not intended to affect social spending on poorer sections of population. They are expected to retain at least current share of gross domestic product over next three years, according to IMF and Argentine Government.
The Argentine government is now hoping for a first loan tranche of 15 billion dollars in June. Loans for anor 5.65 billion dollars were granted by World Bank, Inter-American Development Bank (IADB) and Andean Development Bank (CAF) to Argentina, Dujovne shared.
The Conservative government of Macris has taken measures to liberalise economy since takeover of head of state Cristina Fernández de Kirchner at end of 2015. However, inflation has not yet been pushed under double-digit annual rates. Following an increase in economic performance in year 2017 (a plus of 2.9 percent), government has also significantly reduced economic expectations for 2018 in face of austerity measures ahead.
