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Even with new IMF backing, Macri faces trouble ahead
BUENOS AIRES, Sept 28, 2018 (BSS/AFP) – President Mauricio Macri warned
Argentines Thursday they faced painful months ahead after his government
pledged tough austerity measures to meet the terms of an enlarged $57 billion
bailout from the IMF.
“We have very difficult months ahead of us,” said Macri the day after his
government agreed a revamped $57 billion deal with the IMF to emerge from a
severe economic crisis.
“We knew it would not be easy, we are convinced that this is the only
way,” Macri said in a televised speech from the presidential palace.
Argentina’s currency has lost half its value against the dollar in 2018,
hurting the purchasing power of millions of ordinary Argentines, along with
inflation that is forecast to reach over 40 percent by the end of the year.
“This must be the last crisis. Once the storm is over we will have growth
again.”
Even with the increased package, Macri’s center-right administration has
its back to the wall, with disbursement being linked to his pledge to erase
the budget deficit from 2019.
Without a majority in Congress, Macri will have to convince a hostile
Peronist opposition to adopt a 2019 austerity budget with sweeping spending
cuts.
The revamped agreement will allow the South American country “to leave
behind the turbulent path of recent months,” Finance Minister Nicolas Dujovne
said after the deal was announced Wednesday.
But as if to prove there is no quick fix, Argentina’s under-fire currency
wobbled again on Thursday.
The peso — which has shed half its value against the dollar this year —
dipped 2.3 percent shortly after markets opened.
Setting the tone for the battles ahead, Axel Kicillof — former economy
minister in the previous leftist government of Cristina Kirchner — called
Macri’s austerity measures “a shame” and said governors and lawmakers would
not vote for it.
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– Currency woes-
Buenos Aires originally secured a $50 billion loan back in June, but
quickly burned through an initial $15 billion tranche to fight a run on the
currency, in the process raising interest rates to 60 percent.
However, Macri revealed last month that he had asked for an accelerated
disbursement of the remaining $35 billion, prompting talks on a larger IMF
loan.
Daniel Artana, chief economist with the Latin American Economic
Investigation Foundation, said Macri had inherited a broken economy from
Kirchner in 2015 and was heading in the right direction.
“Argentina is committed to doing what it needs to do, it’s a steep drop in
the budget deficit, but Kirchner’s economic legacy was a ticking bomb,” he
said.
But with unions fighting Macri’s cuts tooth and nail with daily street
protests, getting to the holy grail of a zero deficit will be a painful
process.
The primary fiscal deficit was 6.0 percent in 2015, 3.9 percent in 2017,
and is expected to be 2.7 percent in 2018.
After the peso depreciated by half this year — on Thursday was trading at
over 40 to the dollar — the agreement announced in New York “is a plan to
put out the fire,” said economist Roberto Cachanosky.
“It’s not because you have money that everything is settled,” he said,
referring to the IMF’s early disbursement of 19 billion available over the
next few months.
Analysts say a key point is that the funds available would cover
Argentina’s 40 billion of external debt repayments due before the end of
2019, lowering the risk of rolling over the debt.
Moody’s analyst Gabriel Torres pointed out that “once it regains market
confidence,” Argentina will have to find other sources of financing in the
future.
The agreement may give Argentina much-needed “room to maneuver, but it
does not solve the problems.”
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“Argentina is a very vulnerable economy, dependent on commodities and also
commodities that are affected by the climate,” like grains and cereals.
Aggravating the crisis was a drought that decimated soybean exports.
– IMF at the helm –
Economists on all sides agree that the IMF has taken the reins of the
Argentine economy.
“From now until the elections (October 2019), it’s the IMF who is making
the economic policy,” said Miguel Angel Broda, an economist.
“It is a total triumph for the Fund. Macri has handed over Argentina’s
monetary sovereignty to the Fund,” said Kicillof, who fears the crisis will
only worsen.
Recovery still seems far off for South America’s third-largest economy.
Industrial output saw its third consecutive monthly decline in July, down
5.7 percent, and further disappointing data is expected for August and
September. The government estimates the economy will contract by 2.0 percent
this year.
Growth has been slashed, with a paltry 0.5 percent forecast for next year.
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