BUENOS AIRES (Reuters) - Argentina is seeking a financing deal with the International Monetary Fund to stabilize its finances after two weeks of financial market volatility that saw the peso hit new lows and the central bank jack interest rates up to 40 percent.
“I spoke with (IMF) Director Christine Lagarde, and she confirmed we would start working on an agreement today,” Argentina’s President Mauricio Macri said in an address to the nation.
The move was remarkable, given that many people still blame IMF austerity requirements for policies that led to a financial and economic meltdown in 2001 to 2002 that hurled millions of middle class Argentines into poverty.
“This will allow us to strengthen our program of growth and development, giving us greater support to face this new global scenario and avoid crises like the ones we have had in our history,” Macri said.
Argentine markets have been battered over the last two weeks by local policy uncertainty and regional factors. Other currencies in Latin America have also weakened as risk-averse investors dumped emerging market assets.
Lagarde said in an IMF statement: “Discussions have been initiated on how we can work together to strengthen the Argentine economy and these will be pursued in short order.”
Local newspaper Clarin said Argentina would seek at least $30 billion in financing. The government and an IMF spokesman declined to comment on the amount.
Local markets recovered slightly after the announcement. The peso closed down 2.79 percent at 22.6 per U.S. dollar after touching an all-time low 23.5 during the session. The Merval stock index, which started the day 5.3 percent lower, cut losses to 3.43 percent.
“We have decided to seek preventive financing for Argentina, to give stability to the market,” Treasury Minister Nicolas Dujovne said at a news conference.
He said the deal would not increase the country’s indebtedness, but rather provide a substitute for issuing bonds.
Dujovne said the policy conditions for the IMF financing deal had not yet been discussed. A spokesperson for the Treasury said the minister would travel late Tuesday for an initial meeting with Lagarde.
“An IMF line of credit is the least expensive option for growth in Argentina. It will help lower country risk,” Miguel Kiguel, a former Argentine finance secretary who runs local consultancy Econviews, said in a Twitter post.
Guido Sandleris, a treasury ministry official, told reporters the government would probably have to lower its 3 percent economic growth outlook for this year.
Macri can expect push-back from Argentines who remember the IMF-backed policies that ended in the country’s disastrous sovereign bond default and peso devaluation of 2002.
Several people on the streets of Buenos Aires voiced mistrust of the IMF.
“We’ve already been through this. We’re repeating history. They’re mortgaging our future,” said Diego Hidalgo, a 42-year-old merchant.
“A deal with the IMF implies tighter fiscal adjustments for the country, which did not turn out well the last time,” said Guillermo Delfino, a 40-year-old lawyer.
Macri was elected in late 2015 on an investment-friendly platform following eight years of populist rule under predecessor Cristina Fernandez.
He has reduced utility subsidies, an unpopular move that increased water and heating bills for average Argentines already beleaguered by high inflation.
Last week, the peso hit a then-all-time low of 23 per greenback, prompting the government to announce additional belt tightening and the central bank to hike its key interest rate to 40 percent.
At a policy committee meeting on Tuesday, the central bank left the rate unchanged.
In 2016, the Fund conducted its first Article IV consultation visit in a decade to Argentina. It praised Macri’s pro-market reforms, and said more such measures were needed.
Additional reporting by Maximiliano Rizzi, Eliana Raszewski and Maximilian Heath; writing by Hugh Bronstein and Caroline Stauffer; editing by Rosalba O'Brien, Diane Craft and David Gregorio