The IMF raises Argentina's program to $ 57 billion to support the peso

The IMF raises Argentina's program to $ 57 billion to support the peso


 
27/09/2018

Economy News _ Baghdad

The International Monetary Fund (IMF) has raised its lending program to Argentina for three years by $ 7 billion to $ 57 billion provided the central bank stops its intervention to support the faltering Argentine peso.

Fund manager Christine Lagarde told a news conference in New York with Argentinian Economy Minister Nicolas Duchovny that the fund would raise funding available until the end of next year by $ 19 billion.

Argentina is emerging from emerging markets, which are facing turmoil this year, after drought caused Latin America's third-largest economy to slide into recession.

Due to investor fears that Argentina will be unable to service its external debt next year, the peso has become one of the worst performing currencies in the world this year. The currency has lost more than 50 percent of its value since the beginning of 2018.

Lagarde said the Central Bank of Argentina agreed in the framework of the agreement to liberalize the peso exchange rate and not to intervene in the exchange market except in cases of extreme necessity.

The central bank has spent about $ 16 billion in reserves this year in a failed bid to support the peso, and has used a large part of the dollars provided by the International Monetary Fund so far.

"If the exchange rate goes too far, the central bank can make limited intervention to protect the market from unrest," Lagarde told reporters.

At a news conference in Buenos Aires, Argentine central bank governor Gedo Sandleris said the bank would set a trading range for the peso and would only intervene in the market if it went out of this range.

Sandleris, who took office on Tuesday after a surprise resignation of his predecessor, said the range would initially be between 34 and 44 pesos to the dollar and could fall by 3 percent a month.

He pointed out that any intervention in the market in case of out of this range will not exceed 150 million dollars a day, which is much less than the bank spent many days in recent months.

The Argentine currency was closed at 38.5 pesos to the dollar on Wednesday.

With a wide-ranging reform of monetary policy, Sandleris also said the central bank would give up its inflation target of 27 percent this year and instead set a target for curbing money supply. He pointed out that the bank will target zero percent growth of the monetary base from now until June 2019.

The central bank has already raised key interest rates to 60 percent to curb inflation expected to exceed 40 percent this year.

But while credit represents a small part of Argentina's economic activity after decades of financial crisis, interest rates have only a limited effect on price increases.

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