IMF vows ‘full support’ for Argentina amid economic crisis

The International Monetary Fund (IMF) has pledged its “full support” for Argentina as the country seeks to overcome an ongoing economic crisis that has prompted a world-record interest rate hike and seen the value of the peso plunge to a record low against the dollar.

Gerry Rice, the IMF’s chief spokesperson, said in a statement on Friday that a delegation from the Washington, DC-based body would meet with Argentine officials next week to agree on a “revised economic plan” following President Mauricio Macri’s request this week for an early release of funds from a $50bn bailout package agreed to in June.

“We are confident that the strong commitment and determination of the Argentine authorities will help the country overcome the current difficulties,” Rice said.

His comments came a day after students and university professors rallied in the capital, Buenos Aires, to protest against austerity measures – including education budget cuts – tied to the IMF package.

Many Argentines are wary of the body after its perceived role in the country’s worst ever financial crisis, during 2001-2002, which left one out of every five people unemployed and thrust millions into poverty.

In May, a survey of more than 1,000 people by Argentine pollsters D’Alessio Irol/Berensztein revealed that 75 percent of respondents felt seeking assistance from the IMF was problematic.

On Friday morning, the peso rallied slightly after a disastrous Thursday which saw it drop by 13.5 percent against the dollar by the time markets closed, marking a 53 percent loss in value since the beginning of the year.

In a bid to arrest the decline, Argentina’s Central Bank has raised the country’s interest rate from 45 to 60 percent – the world’s highest.

The government is expected to announce further economic measures at the beginning of next week.

‘Political blowback’

The economic crisis, which worsened after Macri said on Wednesday he had reached a deal with the IMF for accelerated payouts, has spooked investors and prompted public protests.

The General Confederation of Labour, the country’s largest labour union, has called for general strikes in late September over the government’s economic policies.

Argentina has agreed with the IMF to cut its fiscal deficit to 1.3 percent of gross domestic product by 2019, down from 3.9 percent last year, resulting in cutbacks including slashed energy subsidies and the freezing of some government salaries. 

Fiona Mackie, the Economist Intelligence Unit’s regional director for Latin America and the Caribbean, warned the country’s attempt at a “rapid” economic adjustment could prove “painful”.

“Recession could be deep, and political risk will spike amid dwindling confidence at home,” she said in a Twitter post on Thursday.

The economic problems and Macri’s alignment with the IMF have cast doubt over his chances of re-election in next year’s polls.

Monica de Bolle, a senior fellow at the US-based Peterson Institute for International Economics, questioned on Thursday whether there will be a “big political blowback” during the vote with “risks on the rise” ahead of the ballot in October 2019.

Argentina just raised interest rates to whopping 60 percent to contain the peso plunge. A big political blowback coming in 2019? Risks on the rise.

— Monica de Bolle (@bollemdb) August 30, 2018

Macri’s Chief Cabinet Minister Marcos Pena, meanwhile, said on Thursday that Argentina was “not facing economic failure”.

“This is a transformation, not failure. In that transformation there are difficult moments,” Pena told a Council of the Americas meeting in the Argentine capital, Buenos Aires.

Argentina, Latin America’s third-largest economy, currently has an unemployment rate of about nine percent.

According to the World Bank, more than 28 percent of its some 43 million people live in poverty.