Argentina in talks with IMF for $30 billion bailout

[sandensea]

Argentina has asked the International Monetary Fund (IMF) for financing to help stem a five-month-rout in the peso that has led to a surge in interest rates and threatens to derail its economic recovery.

The government is reportedly seeking a flexible credit line worth $30 billion. An IMF spokesman didn’t immediately reply to a request for comment.

President Mauricio Macri announced the talks in a televised address earlier today in order to stem a renewed run on the peso - but without mentioning how large the line was.

“This will allow us to face the new global scenario and avoid a crisis like the ones we have faced before in our history,” Macri said.

The speech was the first time that Macri spoke to the country after the central bank abruptly raised the benchmark interest rate three times in 10 days, from 27% to 40% - the highest among major economies. The currency has plunged more than 18% this year, dragging down local bonds and stocks.

Seeing red

Behind the weakness is growing concern that both inflation (26%) and deficits are spiraling dangerously high.

A record 225 billion-peso ($24 billion) budget deficit Macri inherited in 2015 grew in two years to 569 billion pesos ($34 billion), as steep corporate tax cuts took effect. They are up another 30% in the first quarter due to a doubling in interest payments.

Higher interest payments are in turn due to heavy borrowing reliance on high-yield LEBAC notes, which, despite paying 38%, are being unloaded for dollars to be wired overseas - a variant of carry-trade known locally as the “financial bicycle.”

Rolling back protectionist measures has meanwhile led to a record, $8.5 billion trade deficit and a doubling in the country's historically problematic current account deficit to $30.8 billion, or 4.9% of GDP.

The bailout reportedly requires steep cutbacks in public works, subsidies, and pensions - but no corporate or wealth tax increases.

A similar, $38 billion “bulletproof” IMF-led bailout in December 2000 was followed by collapse a year later as both Argentine and foreign investors largely used the funds to finance capital flight.

At: https://www.bloomberg.com/news/articles/2018-05-08/argentina-said-to-request-30-billion-imf-flexible-credit-line

The IMF's Christine Lagarde and a disconsolate Macri during a recent meeting. The IMF has been one of his right-wing administration's most prominent cheerleaders.

[awesomerwb1]

1. So this idiot had a deficit and then proceeded to cut corporate taxes??

What did he expect would happen? Trickle down wealth? No wonder he's a buddy of dump.

[sandensea]

2. +1

Narco Rubio's a big fan of his too. A bad sign if there ever was one.

[GatoGordo]

3. The tax structure was untenable. He inherited it from the Kirchners

Businesses and jobs were fleeing en masse. Record unemployment, hyper-inflation and corruption to its core. The Kirchners (Peronists) looted the country for their well connected corporate friends before being voted from power. Epic spending with no logical way of paying down that debt. Look what has happened all over Latin America as examples. Nicaragua, Brazil, Venezuela... Bolivia is next.

It happens. Obama inherited the mess left behind by Bush II. Hopefully the mess in Argentina can be turned around sooner rather than later.

[sandensea]

4. Macri is a lot like Dubya. But you're describing de la Rua (another IMF fan) - not the Kirchner era.

From 2003 to 2015 GDP grew by two-thirds, business (including foreign) investment rose to record levels, around 6 million jobs were created (the equivalent of 48 million in the U.S.), the middle class doubled in size, and despite a 20% avg. inflation (normal in Argentina) real wages rose 72% - with not a penny in added foreign debt.

It would have been better still if Argentina's access to credit hadn't been boycotted.

And yet, under "Mr. Pro-Biz" Macri, businesses have cut back or shut down: 80% of new jobs under Macri have been in the informal sector.

Not everyone has felt the pain though: billions have been steered to his friends and supporters by way of tailor-made tax cuts, massive insider trading (as shown by Central Bank docs), and sweetheart contracts.

Now they're back to bailouts. And there's a real chance there may be no money with which to pay bondholders thanks to Macri's financial deregulation and resulting bad debts - $52 billion last year alone.

One can only hope this ends well; it didn't back when they did the same thing in 2001 and during the dictatorship in '81.

[awesomerwb1]

5. Very informative and well documented post sandensea.

Thank you.

[sandensea]

6. You're welcome.

It's a shame Macri - and his speculator friends - have run up debts this way.

Let's hope they find their way out this time, with or without him.