Argentina Turns To IMF As Peso Plummets, Despite Bad History
Argentina held talks with the International Monetary Fund (IMF) on Thursday as the Latin nation is in need of a $30 billion line of credit from the multinational lender following the weakening peso.
Christine Lagarde, the IMF’s chief, expressed her support for Argentina’s reforms and the IMF’s willingness to provide the financial aid to Argentina, a country once dubbed as one of the most prosperous.
“I stressed my strong support for Argentina’s reforms to date, and expressed the fund’s readiness to continue to assist the government,” said the former French finance minister in a statement after meeting with Argentina Economy Minister Nicolas Dujovne.
Dujovne also held talks on Thursday with the U.S. Under Secretary of the Treasury for International Affairs David Malpass. The latter showed support for Argentinian President’s Mauricio Macro’s pro-market economic program.
Two weeks of market volatility brought Argentina’s currency peso to an all-time low. On April 26, Argentina’s peso dropped 1.17 percent to 20.50 per U.S dollar, despite the central bank’s effort to stabilize the currency.
According to a BBC report, Argentina’s central bank raised the interest rate three times in eight days to prevent the freefall of the peso. Argentina is on the brink of an economic crisis as the country’s inflation rate was recorded at 25 percent in 2017, the second highest in Latin America after Venezuela. Argentina set an inflation rate of 15 percent this year.
Argentina’s bitter experience with the IMF
In the past, Latin countries such as Argentina, Brazil, and Mexico were addicted to a big loan program from the international creditor for financing their infrastructure projects.
Argentinians are still traumatized by the word “fund” and “IMF” after a rocky experience with the IMF in the early 2000’s. They blame the IMF’s austerity requirements for forcing the country to default on $80 billion in debt and sending millions of middle-class Argentinians into poverty. Argentina’s unemployment rate jumped to 20 percent.
Argentinian President Nestor Carlos Kirchner Ostoic took office in 2003 and is credited with pulling Argentina out of a depression equivalent to the U.S. Great Depression. During his four-year period, Kirchner recorded a stunning economic growth. The economy grew 9 percent from 2003 to 2007, exceeding the IMF’s expectation of 4 percent from 2004 to 2006. The unemployment rate was reduced from 17.8 percent in 2002 to 14.3 percent in his first year in office and 8.5 percent at the end of his term.
After Nestor stepped down in 2008, Argentina had managed to lift 11 million Argentinians out of poverty, in a country of 40 million people.
The IMF admitted making mistakes in handling Argentina’s crisis. In a report published in 2004, the organization stated it should have prevented Buenos Aires from adapting poor economic policies. Analysts also cited IMF’s demand to hike taxes in 2002 as worsening the situation.
But the situation is different now.
Argentinian President Macri, a former businessman, wants to make Argentina “a normal country” after 12 years of “leftist” rule by the Kirchner regime. But again the memory of the depression in the early 2000’s is still in Argentinians’ mind.
Others claimed that comparing what happened in 2001 to the current situation is too much of an exaggeration.
“No one seriously thinks that. We are a long way from 2001. It is a solid government – with problems, yes, and there have been a lot of criticisms of the way economic policy has been handled – but no one is questioning the strength or the capability of the government to run the country, which is what was happening in 2001,” said Juan Cruz Díaz, managing director at Cefeidas Group, a Buenos Aires risk consultancy.