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Thursday, May 10, 2018

Macri goes to the IMF for rescue operation

Por Rory

Without taking responsibility for economic policy, denounced as a disaster by the most serious opposition, the Argentine president, Mauricio Macri, announced on Tuesday, two and a half years after taking office, the beginning of negotiations for a rescue of emergency with the International Monetary Fund (IMF), trying to avoid the serious financial crisis that is dangerously close to an outbreak such as occurred in December 2001, when despite all the measures taken the dollar continued to climb until close on Tuesday at 22.91 pesos.

The Macri goal of trying to calm the markets, stop the stock market crash (it had overcome losses of 5 percent) and contain the escalation without limit of the dollar, seemed to begin to be fulfilled soon after. Slowly, the US currency (it reached a ceiling of 23.50) recovered digestible positions for a population that speaks, thinks and dreams of green notes.

The president of Argentina did not mention the figure of the credit that is shuffled with Christine Lagarde but rare would be less than twenty billion dollars. It is necessary to know, with precision, details and conditions before that agreement or rescue that is in process, materializes. "My commitment is to always tell you the truth", Macri started. The Argentineans were in a hysterical outbreak, since last week, due to the increase of the dollar that coincides, for greater suffering of the citizen, with the rise of tariffs for public services, double-digit inflation and loss of confidence in the Government. "The only possible way out of stagnation and avoid the great economic crisis," insisted Macri, is the "gradualist economic policy that seeks to balance the disaster that left us in the public accounts," recalled alluding to the twelve years of Kirchnerism.

Argentina's president tried to explain the current situation of the country and cut their losses attempts to destabilize a government that fails to take off the economy and make the country competitive. "This policy (of gradualism) depends a lot on external financing ... World conditions are becoming increasingly complex," he said. Macrí listed the "variables that we do not manage" and have shaken the board: "Interest rates rise, oil rises" and causes "emerging currencies to be devalued". What he did not analyze was why these circumstances cause panic in Argentina and the same does not happen in Brazil, Uruguay, Chile and other neighboring countries of the region that feel the shaking with similar virulence.

The successor of Néstor Kirchner and Cristina Fernández in the Casa Rosada, acknowledged, "we are from the countries of the world that depend the most on external financing", which is why the announcement came, "in a preventive way and in the face of this new situation" decided to "initiate talks with the IMF to grant us a line of financial credit ". The objective of this return to the international body that produces more allergy in the skin of Argentines justified Macri, "to strengthen the program of growth and development" that is taking place in this "global scenario. And avoid crises like those in our history".

Aware of the commotion that was to cause the announcement, Mauricio Macri, made an effort to explain the reasons for the decision: "I did it thinking of the interest of all Argentines. Not lying to them as they have done to us so many times".

The request for help from the IMF is the story of a failure. And it supposes the payment of a very high political cost for Macri, at the head of a country that for years accused the Fund of being behind wild adjustments and great economic crises. But Macri had no other choice, so much so that he decided to take responsibility for the announcement himself. In a hostile context for the currencies of the region, the Argentine peso showed its vulnerability. The currency reached 23.50 pesos mid-morning, despite the extraordinary measures to avoid it. During the last week, the central bank rose from 32.25% to 40% interest rates, in an attempt to discourage investors who were fleeing at full speed of the peso and were pouring into the US currency. The decision calmed the markets, but the spring lasted only until today. The stock market accompanied the bad weather with a fall of almost 5% in the middle of the wheel.

The deficit is the lame leg of the model. The government announced last week that it will cut some $ 3 billion of public spending and reduce the State's dependence on foreign money. But none of that was enough. Investors no longer trust the Argentine economy, despite the international support that Macri has deserved since coming to power. While the dollar rose 5.3% in Buenos Aires, Colombia depreciated its currency 1.4%, Chile 1.3% and Brazil 0.8%. Sustaining the peso cost the Argentine Central Bank more than 5,000 million dollars from Friday of last week.

The first time that Argentina received money from the IMF was in 1957, when the military that had overthrown Juan Perón asked for 75 million dollars. The last was in January and September 2003, for 10 billion dollars. The relationship ended in 2006, when President Néstor Kirchner canceled the total debt. It was an economic decision, but above all politics. For many Argentines, the IMF was and is synonymous with adjustment and its role in the 2001 debacle, where it withdrew financing from the government of Fernando de la Rua, was questioned even outside the South American country.

Criticism of the IMF was one of the main banners of Kirchnerism, in line with the regional governments of the left that marked South American politics during the last 15 years. But the payment to the IMF was not a break, because Argentina never left it. It allowed him, however, to reject the technical evaluation visits to which the Agency obliges its partners. It was a time when the tailwind accompanied emerging economies, with record prices for raw materials and rates close to zero. Argentina was financed during all that time with domestic debt, in pesos. But that changed with the arrival of Macri. The dollar exposure of the Argentine debt is huge, much higher than that of other emerging countries. Between 2016 and 2017, the Government issued bonds for 59,000 million dollars, almost twice as much as Saudi Arabia, the second on the podium, and three times the third, Indonesia.

Lagarde was last March in Argentina, in the framework of the summit of finance ministers of the G20. It brought as a message that the IMF had changed, attentive to the social consequences of its macroeconomic recommendations. "Sometimes we went too far and too fast for society to take it in. And we have already analyzed that we underestimate the impact of multipliers," he said in an interview with EL PAÍS held in Buenos Aires. Lagarde took advantage of his trip to Argentina, the first of a senior executive of the IMF in 11 years, to support the policy of "gradualism" applied by Macri.

At that time there was no talk of financial support, but the good tune was evident. "It is an IMF that is very different from the one it was 20 years ago, it has learned from the lessons of the past, and has supported the gradual program of Argentina, I am sure we can agree on a program that supports our direction," said Finance Minister Nicolás Dujovne. It was an attempt to placate the political storm that is looming.