Argentina and the IMF Second Times a Charm

Oct 11 16:10 2018 Print This Article

Like shock therapy, Argentina’s new lending agreement with the IMF delivers immediate benefits: increased funding and front-loaded disbursements to meet the country’s budget through next year. It also comes with serious side effects, including a likely deep recession in Argentina and the risk of political resistance leading up to the country’s elections in 2019.

Still, from an investment perspective, we think the new IMF agreement improves on the initial program announced in July, and we see opportunities in segments of Argentina’s bond market where prices reflect the risks.

IMF deal 2.0

As U.S. interest rates and the dollar have risen since April, Argentina’s challenges have escalated, including budget imbalances, inflation over 30%, and a 50% drop in the peso. After a failed attempt to restore confidence with a three-year US$50-billion lending program from the IMF in July, the IMF announced in late September a $7 billion increase in Argentina’s credit facility (to $57.1 billion), together with front-loaded disbursements worth $19 billion. The revised program effectively covers Argentina’s market-related financing needs through 2019.

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