© Reuters. Argentina’s President Macri pauses during a news conference at the Olivos Presidential Residence in Buenos AiresBy Hugh Bronstein and Jorge Otaola
BUENOS AIRES (Reuters) – Argentina’s peso touched a record low 32 per U.S. dollar on Wednesday, prompting the central bank to sell dollar reserves for the second straight day while the president asked the International Monetary Fund for early release of funds from a standby deal.
The currency
Nerves are frayed in Latin America’s No.3 economy as it struggles to break free from its notorious cycle of once-a-decade financial crises. The most recent one, punctuated by a 2002 debt default, tossed millions of middle-class Argentines into poverty.
Investors are once again concerned that Argentina, with its high inflation, weak economy and fallout from a global selloff in emerging markets, may not meet its debt obligations.
“We have agreed with the International Monetary Fund to advance all the necessary funds to guarantee compliance with the financial program next year,” President Mauricio Macri said in a televised address on Wednesday. “This decision aims to eliminate any uncertainty.”
A spokesperson for the Fund was not immediately available for comment.
The central bank sold $200 million of its reserves in two currency auctions on Tuesday aimed at stabilizing the peso, which nonetheless weakened to a record close of 31.50 per dollar. Another $300 million were auctioned on Wednesday.
“Over the last week we have seen new expressions of lack of confidence in the markets, specifically over our financing capacity in 2019,” Macri said.
Argentina has $24.9 billion in peso- and foreign currency-denominated debt payments due next year, according to official data. Total financing needs for the year are $32.3 billion with a primary fiscal deficit projected at $7.4 billion.
The Central bank says it has sold more than $13 billion in the foreign exchange market this year as monetary policymakers try to support the swooning currency. The Treasury has sold dollars as part of the effort as well.
The government expects the country’s economy to contract 1 percent in 2018 but grow by at least 1.5 percent next year.
“Guaranteeing 2019 financing will allow us to restore confidence and return to a growth path as quickly as possible,” Macri said.
FISCAL MEASURES
Macri sealed a $50 billion IMF standby financing deal in June that reduced the need for costly bond market funding and briefly steadied the peso. His government has since announced more than $2 billion in budget savings, a process he promised to continue.
“We will accompany the IMF support with all necessary fiscal efforts,” said Macri, who was elected in 2015 on a free market platform after eight years of deep government intervention in the economy under previous President Cristina Fernandez.
Ahead of an expected re-election bid next year, Macri has seen his popularity fall after reducing retirement benefits and cutting utility subsidies that people had grown accustomed to under Fernandez.
Lowering subsidies was aimed at reducing Argentina’s fiscal deficit. But the move also consumer prices by raising household water and heating bills. Twelve-month inflation was clocked at 31.2 percent in July.
“I know that these tumultuous situations generate anxiety among many of you,” Macri said. “I understand this, and I want you to know I am making all decisions necessary to protect you.”
Source: Investing.com
