Argentina sets off for Washington
August 31, 2018 |
Government's economic team says it is working on measures to stop the bleeding of the peso, schedules conference for Monday
Argentina's government has booked itself a heavy weekend after economy minister Nicolás Dujovne said he will hold a press conference on Monday explaining measures the central government will take to curb its deteriorating peso.
On Thursday, the yield on Argentina's century bond had widened to 10.15% after the country's peso plunged to roughly ARS39.5 per dollar, forcing the central bank to hike interest rates to 60%.
"The move has provided some support, but our sense is that maintaining investor confidence for a sustained period will require more input from government," said Edward Glossop, Latin America economist at Capital Economics. "Particularly details on how [Argentina] plans to meet the IMF's fiscal targets."
The Central Bank went into action this Friday hiking its daily dose of dollars at an auction to $675m.
After talking to the press at home on Monday, Argentina's economic team heads to Washington, DC to meet with IMF managing director Christine Lagarde on Tuesday.
Gerry Rice, Chief IMF spokesperson said the institution had been working closely with the Argentines. “Our goal is to rapidly conclude these talks and submit the revised economic plan to the executive board. The managing director stressed Argentina has the full support of the fund and we are confident the strong commitment and determination of the Argentine authorities will help the country overcome the current difficulties.”
The latest plunge in the peso came after President Mauricio Macri asked the IMF on Wednesday to speed up disbursements of a $50bn credit agreement Argentina signed with the multilateral in June to shore up the peso.
An investor who spoke to LatinFinance on Thursday morning welcomed the decision to hike rates.
"You need to make it obscenely expensive to short this currency," the London-based investor said. "Raising rates and restricting fiscal spending is the correct response."
Control over domestic liquidity is key to reinforce the anti-inflationary bias, according to Alberto Ramos, an economist with Goldman Sachs.
"The fight to anchor the currency and support market sentiment is a battle the central bank cannot win alone," Ramos said in an emailed note on Thursday. "A clear and decisive fiscal response is also needed, for at the root of the current market distress is chiefly the large fiscal financing requirements and the market's uneasiness with the country’s ability to fund them under normal market conditions."
Argentina's agreement with the IMF helps it avoid the debt capital markets, but it must maintain strict fiscal policy requirements.
To satisfy the IMF, Argentina's must hit a fiscal target of 2.7% of GDP this year and 1.3% in 2019 before reaching a fiscal balance in 2020.
"While this should be viewed as positive, it demonstrates how fragile Argentina remains, just two months after its IMF agreement," Exotix Research said.
Current inflation in Argentina stands at 31.2%, and the country's reserves are at $54.7bn, according to the Central Bank's website.