Argentina is thrown a $50bn lifeline

Argentina has agreed s $50bn credit deal with the IMF, which should stabilise the currency and encourage foreign investment.

Andrew Van Sickle
By
published
in Features

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Mauricio Macri: economically orthodox
(Image credit: 2018 Getty Images)

"If you are going to go, go big and get on with it," says the Financial Times. Argentina and the International Monetary Fund (IMF) have done exactly that, agreeing a large financing deal unexpectedly quickly. Argentina will have access to a $50bn credit line, and in return will give the central bank full independence and aim for a balanced primary budget (spending before interest-rate payments) by 2020. These are "wise" measures, and in line with President Mauricio Macri's plans. "He is as close to economically orthodox as any president in decades."

Why did he need help in the first place? Argentina was the victim of a panic attack among investors a few weeks ago. All emerging markets sold off as a rising dollar and the prospect of higher US interest rates reduced demand for riskier assets such as emerging markets. Argentina is among the most vulnerable due to its huge current account, or external deficit. This shortfall with the rest of the world is worth around 5% of GDP and must be plugged with foreign capital.

A hostile environment for emerging markets always leads to capital flight. Not only was Argentina unusually reliant on foreign money anyway, but it unnerved investors by raising its inflation target when inflation "refused to decline quickly enough". The Argentine peso, which has lost almost a fifth since April, looked vulnerable to a run.

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Inflation is still at 28%, and the state will need to keep a lid on spending to bring it down, says Lex in the FT. That could affect Macri's popularity when elections are due next year. Still, a cheaper and more stable currency should encourage foreign investment, crucial to productivity and long-term growth. It is currently worth 2% of GDP, half the regional average. This IMF package is good news.

Andrew Van Sickle
Andrew Van Sickle
Editor, MoneyWeek

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.

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