Argentina is seeking IMF aid after a series of drastic interest rate rises failed to stop the slide in the peso, pushing a country that only recently restored its credibility with investors back towards a financial crisis.
Mauricio Macri, the reform-minded president, announced the approach in a televised address, saying international assistance would enable the government to 「avoid a crisis like the ones we have faced before in our history」.
In discussions with Christine Lagarde, IMF managing director, Mr Macri discussed a precautionary credit line Buenos Aires could access to shore up its currency and stabilise debt markets. Bloomberg News reported he was seeking $30bn.
The talks took place as the peso plunged more than 5 per cent to a record low of 23.10 pesos to the dollar, taking its decline in the past eight trading days to 12 per cent — in spite of its central bank spending $5bn in reserves and raising interest rates to 40 per cent on Friday. Mr Macri』s announcement gave the currency a brief reprieve and it recovered to 22.30.
Simon Quijano-Evans, EM strategist at Legal & General Asset Management, said the IMF programme would be likely to lead to further fiscal tightening in a country that has already been working through Mr Macri』s more gradual austerity programme.
「The most effective way would be to restrict wage hikes,」 said Mr Quijano-Evans. A flexible credit line, an IMF programme without fiscal conditions, was unlikely, he added.
Mr Macri』s opponents attacked him for his decision to approach the IMF, which has a troubled history in Argentina. 「After receiving a country with one of the lowest levels of debt in the world, Macri announces that he must resort to the recipes of the IMF. We changed the future for the past,」 Cristina Fernández de Kirchner, Mr Macri』s leftist predecessor, wrote on Twitter.
Mr Macri defended his 「gradualist」 strategy to rebalance the 「disastrous」 inheritance from Ms Kirchner』s government, which he accused of 「demagoguery and lies」.
Argentina』s problems have been exacerbated by a surge in the US dollar, which has risen as investors increasingly believe the US economy is growing faster than the rest of the world』s. The dollar』s rise has turned the focus on to emerging markets, where slowing growth and rising debt levels have given traders a new round of jitters.
Although the peso has been the hardest-hit developing world currency, it was not alone yesterday. The Turkish lira fell 0.8 per cent against the dollar to a record low of TL4.30.
The sell-off was not helped by Jay Powell, Federal Reserve chairman, who signalled US rate-setters believed emerging markets could weather US interest rate rises on their own.