markets

Markets Give Argentina Breathing Room With IMF Talks Easing Concern

Pedestrians watch a street performer play cello on Florida Street, one of the main commercial thoroughfares, in Buenos Aires.

Photographer: Victor J. Blue/Bloomberg

Argentine markets rebounded on Thursday as Treasury Minister Nicolas Dujovne meets with the International Monetary Fund to discuss terms for a credit line that can help stabilize the country’s finances after a selloff in the peso.

The peso gained for the first time in four days following the announcement late on Wednesday that the central bank activated a $2 billion credit line with the Bank for International Settlements and that Argentina began talks with the Fund on a stand-by agreement. The currency rose 0.4 percent to 22.65 per dollar at 11 a.m. in Buenos Aires. The yield on the century bond fell 20 basis points from a record to to 8.04 percent.

“Stopping the run on the peso and reaching an effective IMF deal as soon as possible appear today to be indispensable first steps in the long process of returning confidence to the market," Pablo Waldman, head of strategy at INTL FCStone Argentina, wrote in a note. “Looking beyond, the Macri administration will have to revise its strategy and maybe even its players ahead of 2019."

Thursday’s rebound in local markets may be temporary, traders said, as talks on the stand-by agreement are still scant and negotiations with the multi-lateral lender are expected to last more than a month. The government has about 674 billion pesos ($30 billion) of short-term, central-bank debt that matures on May 16.

Finance Minister Luis Caputo on Tuesday dismissed concerns among many Argentines that the Fund will impose harsh conditions on the government in order to disburse funding. He said financing is a “preventative” measure ahead of any international crisis and that Argentines shouldn’t be concerned the IMF will request deep cuts to the budget.

Major Debt Burden

Argentina faces over $111 billion in payments over the next 10 years

Note: Argentina has debt maturities up until 2117, when it will finish paying century bond

Source: Bloomberg

The fund has declined to comment on the content of talks so far, which began on Wednesday. Dujovne met the fund’s Western Hemisphere director, Alejandro Werner, on Wednesday. Dujovne sat down with U.S. Undersecretary for the Treasury David Malpass on Thursday morning and is scheduled to meet Managing Director Christine Lagarde in the afternoon.

A stand-by arrangement is the fund’s most commonly used loan for countries in debt distress. It carries tougher conditions than precautionary credit lines such as the one Mexico secured for use in an emergency. Under a stand-by arrangement, Argentina will face regular reviews of its economic policies, and loan tranches will only be disbursed once the fund is satisfied progress is being made.

“The devil’s in the details with respect to terms,” said Michael Roche, a fixed-income strategist at Seaport Group in New York. “But I think Mr. Macri can use the conditions imposed by the Fund as political cover to get some difficult measures enacted.”

— With assistance by Ignacio Olivera Doll, and Jorgelina Do Rosario

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE