The Buenos Aires Stock Exchange stands in Buenos Aires, Argentina. (Photographer: Sarah Pabst/Bloomberg)

Argentine Peso, Bonds Rebound After IMF Pledges ‘Full Support’

(Bloomberg) -- Argentina’s currency crisis eased on Friday as the peso rallied after the International Monetary Fund declared “full support” for a beleaguered government seeking to shore up public finances.

The peso gained 2 percent to 36.85 per dollar at the end of trading in Buenos Aires, and government bonds also pared declines.

The currency still closed the week with a loss of more than 16 percent, after a downward spiral that saw policy makers scrambling for a fix.

The central bank raised its benchmark interest rate to a world-high 60 percent on Thursday. A day earlier, President Mauricio Macri -- who came to power in 2015 promising to return Argentina to normality after more than a decade of left-populist rule -- made a surprise appeal to the IMF, seeking to expedite payments under the record $50 billion credit line agreed in June.

The Fund looks set to oblige, saying that high-level talks will start Tuesday with the aim of “rapidly” submitting a revised lending plan to the IMF board.

‘Huge Difference’

“The IMF headline made a huge difference, assuring the market that they’re standing behind Argentina,” said Roger Horn, senior emerging market desk analyst at SMBC Nikko Securities America.

On Monday, Macri’s government is due to explain how it will trim the country’s budget deficit faster than previously envisaged. Jitters about a lack of detail in Argentina’s fiscal plan contributed to this week’s selloff, which reached peak intensity yesterday when the peso plummeted 12 percent and bond yields soared to the highest since Macri took office.

Yields on Argentina’s 10-year dollar bonds retreated to 10.61 percent on Friday, down 5 basis points.

Creditors have been stiffed eight times since Argentina gained independence from Spain two centuries ago, -- including a major default after the currency crisis of 2001, which also sparked widespread social turmoil and led to some 15 years of left-wing dominance in the country’s politics.

Treasury Minister Nicolas Dujovne told reporters that the government on Monday will release its plan for a “substantially lower” deficit target for 2019, bringing the primary deficit -- which excludes interest payments on debt -- below 1.3 percent of GDP. Dujovne will then travel to Washington to meet with IMF officials including Managing Director Christine Lagarde.

The central bank also helped to steady investor nerves on Friday, selling $250 million in the foreign-exchange market to shore up the peso.

By the end of the week, Greylock Capital Management was describing the selloff as “somewhat of a blip” given the international support that materialized for Argentina -- and suggesting that it’s not a bad time to add exposure.

Horn, at SMBC Nikko, was more cautious. Friday’s respite “doesn’t mean we’re out of the woods yet,” he said. “A lot of investors have just taken some painful hits marking down bond positions. So it will take some time to see if sentiment can change.”

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