​Back to the IMF

ARGENTINA - In Brief 08 May 2018 by Esteban Fernández Medrano

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After last week’s measures to control devaluation expectations[1] president Macri announced today that the government has agreed with the IMF to retake conversation with the aim to negotiate a new Flexible Credit Line (current market talks go as high as USD 30bn).Treasury Minister Dujovne, who is travelling today to the US, further explained that the FCL would be for the time being just preventive, as most of this year’s financing needs are covered. But if it is eventually used, it would have the objective to lower the government´s financing cost in an environment of rising global interest rates. Also it would also reduce the crowding out of the government's debt placements to the private sector (a rather secondary effect given the BCRA interest rate hike). Dujovne anticipated that the IMF would most likely accept Argentina´s gradualist approach to achieve fiscal and monetary balance. I.e. that the usual “strings and conditions” attached to any IMF program, would not imply a significant change of the current economic model. While this is not ensured, it does sound relatively reasonable given the rather market oriented economic approach of this government. Last week, quite ortodox, reaction to the devaluation pressures is a clear example of it. In light of the fact that Argentina would need time, at least in any gradualist scenario, to reduce its fiscal imbalance while financing a significant balance of Payment deficit, returning to the IMF makes, at least technically speaking, perfect sense. It is a cheaper and theoretically more reliable source of financing in times of higher market uncertainty. It might also act as some sort of credit enhancer for Argentine debt as l...