Argentina Pledges to Defend Currency as IMF Plans Trip Soon

(Bloomberg) -- Argentina promised to use “all available tools” to stabilize the peso after last week’s rout, while the International Monetary Fund said it is sending a delegation to visit the country “soon.”

The government is working to keep the currency within last week’s range of 45.2 to 60.4 pesos per dollar, newly sworn-in Economy Minister Hernan Lacunza said in his first news conference. The Argentine currency gained 0.46% to 54.75 per dollar on Tuesday, following a market holiday in Buenos Aires during which bonds continued to fall.

“We have reason to believe that the current exchange rate is weaker than the equilibrium value,” Lacunza said. “To allow more volatility or a weakening trend would only increase uncertainty and inflationary pressure.”

Argentina’s peso and sovereign bonds have slumped to record lows since the surprising result of the Aug. 11 primaries, which left opposition candidate Alberto Fernandez as the favorite to win the Oct. 27 presidential election. Investors fear he may seek to renegotiate debt obligations with the IMF and bondholders. Fitch Ratings and S&P Global on Friday downgraded the country’s credit rating deeper into junk territory citing the possibility of a sovereign debt default.

Argentina’s bonds recovered slightly late on Tuesday after Fernandez said in a radio interview he will honor Argentina’s foreign obligations. “Nobody wants to default,” he added.

Yet the country’s fiscal situation keeps deteriorating. Lacunza estimated the country will end the year with a primary fiscal deficit of 0.5%, wider than the previous goal of a 0.3% deficit. The net fiscal cost of the measures that President Mauricio Macri announced last week to help curb the effects of the peso drop is 5 billion pesos ($90 million).

The government is working with the central bank to reduce volatility in the peso that may translate to higher inflation, central bank chief Guido Sandleris told reporters right after Lacunza’s remarks. The central bank will continue intervening in the peso and introduce more measures to curb inflation, he added.

Argentina’s Central Bank, Public Banks Are Said to Sell Dollars in Market

When asked if there was a plan B, Sandleris said: “No. I’m confident with the current plan.”

IMF Mission

An IMF delegation is preparing to travel to Buenos Aires “soon,” according to a statement from spokesman Gerry Rice. An IMF team had been scheduled to land in Argentina this week to complete its fifth review as part of process to approve the latest disbursement of its $56 billion loan with the country. Lacunza said he had spoken with IMF officials by phone after taking office.

Lacunza, formerly economy minister for the province of Buenos Aires, was named to the role Saturday after former minister Nicolas Dujovne resigned following the market turmoil. He added that he plans to meet with the main economic advisers of opposition political parties to avoid public comments that could destabilize the economy.

Some analysts pointed to the lack of concrete measures in the two press conferences, while welcoming that Lacunza made a direct overture to the opposition.

“There was little detail - good intentions but few measures,” analysts at Buenos Aires-based consulting firm Delphos Investment wrote in a note. “The aim seems to be to make it to Oct. 27 with as much help as possible, since they can’t make it on their own.”

In a statement that followed the press conference, the economy ministry also said it paid $2.6 billion to banks to settle repo agreements, allowing it to recover $12.8 billion of bonds it had put up as collateral and reducing its public debt held in foreign currency.

To contact the reporters on this story: Jorgelina do Rosario in Buenos Aires at jdorosario@bloomberg.net;Patrick Gillespie in Buenos Aires at pgillespie29@bloomberg.net

To contact the editors responsible for this story: Daniel Cancel at dcancel@bloomberg.net, Carolina Millan, Walter Brandimarte

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