Argentina In Discussions With IMF to Increase Credit Line

(Bloomberg) -- Argentine President Mauricio Macri said a revised agreement with the International Monetary Fund will help shore up investor confidence in the nation after a currency rout pushed South America’s second-largest economy into recession.

“We are working with the IMF and we are going to present something that will bring confidence,” Macri said in an interview with Bloomberg TV in New York. “We will have more support from them.”

Macri declined to provide specifics, but added that a new deal should be expected “in a couple of days.” He said there’s no chance Argentina will fail to pay its debts given the Fund’s support -- a question that keeps haunting investors since the government defaulted in 2001 following a smaller IMF loan.

Argentine officials are negotiating an increase in the $50 billion credit line with the IMF, said a government official with direct knowledge of the discussions. An increase of $3 billion to $5 billion is more likely than the additional $15 billion to $20 billion in funds that were reported by local media last week, according to the official who requested anonymity as the talks are not public.

The amount of cash to be initially released is still under negotiation, the official added. Argentina has been trying to speed up loan disbursements to appease investors who feared the country may not receive enough funds in time to repay its debts in 2019. As part of the IMF agreement, Argentina will cut government spending sharply next year while Macri seeks re-election. The government has agreed to reduce its primary fiscal deficit from 2.6 percent of gross domestic product this year to zero next year.

Macri said the renegotiated IMF agreement would include a more detailed monetary policy framework to provide clarity on the central bank’s policies but said foreign exchange controls similar to those implemented in the past, are not under discussion.

“What it will involve is a clear monetary policy that will show where we are going -- that’s the most important part of the agreement,” Macri said.

Too Ambitious

Economy Minister Nicolas Dujovne, who accompanied Macri, told Bloomberg in a separate interview that Argentina made a mistake by setting overly ambitious inflation targets. Consumer prices are expected to rise 40 percent this year, according to a central bank survey of economists. The government’s target at the beginning of the year was 15 percent.

“There’s a need for a revamp in how we see monetary policy," said Dujovne.

Investors in New York were very positive about Argentina’s plans to deal with its financial crisis, Dujovne said at a press briefing late on Monday. The political cycle and concern about continuity of policies is driving doubts in markets, he said. He said he didn’t discuss setting currency bands during his meetings with investors today.

Argentina turned to the IMF in May as the peso plunged following a historic drought, rising U.S. interest rates and an emerging-market selloff. The two sides returned to the negotiating table this month after the peso fell sharply again in August.

The currency was down 0.5 percent to 37.34 per U.S. dollar on Monday. It has lost nearly half of its value this year.

©2018 Bloomberg L.P.