The Strategist

Will IMF's loan help Argentina stop flight of investors?


06/12/2018 - 04:54



The IMF will give Argentina a loan of $ 50 billion, and this is even more than expected. For a time, the loan will help to restore confidence of investors, experts say. Now most developing countries suffer from capital flight because of the policy of the US Federal Reserve.



Qu1m
Qu1m
Argentina agreed with the International Monetary Fund (IMF) to open a $ 50 billion credit line to stabilize the peso exchange rate and support reforms initiated by the government.

The agreement should be approved by the executive board of the fund on June 20, which will consider the economic program of the government of Argentina, the organization said.

Argentina will receive about $ 15 billion immediately after the program is approved. At the same time, the following tranches will be allocated to the IMF after reaching the goals set in the program.

"The central part of the government's economic plan is a budget rebalancing," said IMF Managing Director Christine Lagarde. "We fully support this priority goal and welcome the authorities' intention to accelerate the deficit reduction in order to have zero primary deficit by 2020".

About a month ago Argentine President Mauricio Macri announced Argentina's intention to conclude an agreement with the IMF amid a sharp decline in the peso rate. Otherwise, the country's ability to service external debt was questioned. Over the past 14 years, Argentina has been in a state of default on certain debt obligations.

In recent times, the currency crisis has added to the high inflation in the country, the huge national debt and the budget deficit (the level of the national debt to GDP is 54.2%, the budget deficit - 3.9%).

Against the backdrop of the general flight of capital from developing countries to the increased US government bonds, Argentina recorded an outflow of investors' funds. As a result, since the beginning of this year, the devaluation of the national currency (peso) has continued, amounting to more than 25%.

Initially, it was about granting Argentina about $ 30 billion. Thus, Argentina managed to get an even larger loan from the IMF. In addition, the IMF reviewed the application of the Latin American country in less than a month.

As the Prime Minister of the country Marcos Peña said, Argentina asked to consider a "stand-by" agreement for Argentina. "This tool has the necessary flexibility to achieve the goal that we are striving for," he noted. The allocation of financial assistance was expected for three years.

It was clear that Argentina would receive a loan from the IMF. In particular, American officials publicly spoke about the problems of Argentina, even US President Donald Trump published a tweet on this topic.

Argentina's loan, which is almost twice as much as planned, will help restore the shaken investor confidence. However, the funds allocated by the IMF stop the flight of investors from the country only for a while. Now the situation for developing countries is generally unfavorable: problems with the outflow of capital are observed not only in Argentina, Turkey, but also in Asian countries, in particular, India. So the main question in the near future is whether developing countries will be able to stop the withdrawal of capital. Otherwise, the allocation of even $ 100 billion will not be enough.

source: reuters.com




More
< >

Friday, October 19th 2018 - 15:31 E-commerce boosts the Asian air cargo market