Argentina Seeks Stand-By IMF Agreement, Activates BIS Line

(Bloomberg) -- Argentina said it is negotiating a stand-by credit arrangement with the International Monetary Fund that may take six weeks to finalize as the central bank announced it activated a contingency line with the Bank for International Settlements.

Treasury Minister Nicolas Dujovne met with the Fund’s Western Hemisphere chief, Alejandro Werner, on Wednesday in Washington in order to begin negotiations that may last more than a month, his press office said. The government believes it can secure the credit at an interest rate of about 4 percent, Finance Minister Luis Caputo said on TN television late Wednesday.

“Argentina will ask for a high-access stand-by agreement,” the Treasury Ministry said in a statement. “The technical teams are currently exchanging information. This process usually takes about six weeks.”

Dujovne will sit down with IMF Managing Director Christine Lagarde on Thursday, the Fund’s press office confirmed in a separate statement that didn’t include details on talks. Dujovne will also meet with U.S. Treasury Undersecretary David Malpass.

The IMF had no immediate comment on the Argentine statement.

Argentina is said to be seeking $30 billion from the IMF to calm markets that have been pummeled by concern inflation is accelerating as government expenditures balloon. The selloff spread from the currency to bonds, where yields have surged, and the stock market, which has lost more than 20 percent of its value in the past few months.

After another day of losses in the currency market, the central bank announced Wednesday evening that it took a line of credit with the BIS for $2 billion to strengthen its reserves position.

Lagarde praised the Argentine government’s economic program during a visit in March, Finance Minister Caputo said Wednesday night, a signal that Argentina will be able to negotiate from a strong position and that there are likely to be few demands from the Fund. Argentina will have “flexible” use of any credit, which is a “preventative” step ahead of any global crisis, he said.

Easing Investors

“There is some uncertainty about how markets will behave in the next few months,” Caputo said. “What are we doing is removing that uncertainty. We are providing peace and certainty.”

Claudio Loser, founding member and director of Centennial Group Latin America and a former head of the IMF’s Western Hemisphere department, said news of negotiations for a stand-by agreement suggest tougher talks lie ahead.

"The IMF gave the government a small reality shock, saying, look, you’ll need to fix things before we can lend you money," he said. “I expect now that the IMF will demand some structural changes, perhaps beyond the macro. They’re basically saying: What you have isn’t enough, the changes you made to the fiscal deficit targets Friday weren’t enough."

On Tuesday, Dujovne said the country was looking to "have a preventative line of credit" with the IMF, which is different from a stand-by arrangement.

According to the IMF’s website, a stand-by arrangement “allows the Fund to respond quickly to countries’ external financing needs, and to support policies designed to help them emerge from crisis and restore sustainable growth.”

A stand-by arrangement is the fund’s most commonly used loan for countries in debt distress. It carries tougher conditions than precautionary credit lines such as the one Mexico secured for use in an emergency. Under a stand-by arrangement, Argentina will face regular reviews of its economic policies, and loan tranches will only be disbursed once the fund is satisfied progress is being made.

The peso fell 1 percent to 22.69 per dollar to close in Buenos Aires on Wednesday, extending the currency’s decline to 18 percent this year. The yield on the century bond rose to a record high.

“Now you have to start using all your firepower, with anything you have available," said Marcos Buscaglia, partner from Alberdi Partners, an economic and political consulting firm in Buenos Aires referring to the combination of IMF financing and BIS credit. “You wanna remove any fear.”

--With assistance from Carolina Millan Jorgelina do Rosario and Andres R. Martinez

To contact the reporters on this story: Ignacio Olivera Doll in Buenos Aires at ioliveradoll@bloomberg.net, Pablo Gonzalez in Buenos Aires at pgonzalez49@bloomberg.net, Andrew Mayeda in Washington at amayeda@bloomberg.net.

To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Robert Jameson

©2018 Bloomberg L.P.