IMF Will Loan Argentina $50 Billion

Argentina and the International Monetary Fund (IMF) reached an agreement for a Stand-By Arrangement (SBA) for $50 billion in loans over the course of three years on Thursday, June 7th. The bailout plan has come in response to Argentina’s cry for help last month, following the plummet in the value of the peso in an economy already characterized by high inflation and lagging GDP growth. The SBA is still subject to approval by the Executive Board of the IMF, which has said that it intends to draw on the first tranche of the SBA but will treat the loan as precautionary.

Christine LaGarde, Managing Director of the IMF, has stated that the international organization fully supports the priority of the Argentine government to rebalance the fiscal position and lower inflation by ending central bank financing of the federal deficit.

Yet the Argentine people, in many cases, have shown distaste for the nation’s cooperation with the IMF. Many still blame austerity policies encompassing IMF conditionality for an economic collapse in 2001-2002, which caused widespread unemployment, a default on foreign debt, and the end of the fixed US-peso exchange rate. Fiscal austerity entails the reduction of government budget deficits through cuts in spending, the increase of taxes, or a combination of both. This means less public benefits and higher prices, which can hurt the public very badly when a nation is already in economic decline.

Argentinians have historically been known to use protest as a means of expressing their political concerns. Although current president Mauricio Macri now seeks to undo the corruption and economic mismanagement under former president Nestor Kirchner, his policies have not always sat so well with the public. After he took office in 2015, many of the protesters took to the streets during his first year in response to austerity measures taken by his new administration, such as hikes in public service taxes, layoffs from government jobs, pension and labor reforms, and other means of increasing government revenue and reducing spending.

But in its state of crisis, the Argentine government had little choice but to ask the IMF for assistance. In recent months, Argentina’s annual inflation rate has climbed to about 25.6%. Argentines have struggled to pay for basic goods like bread and beef. But to make matters worse, in order to reduce government spending, new policies have removed subsidies on utilities that helped to reduce energy prices in the past. This means that Argentinians must shell out more money to pay for electricity, gas and water. Meanwhile, wages remain relatively low.

Furthermore, Brazil, Argentina’s largest trading partner, is experiencing its own fair share of political and social issues, including a spike in corruption scandals ongoing since 2014. Its currency has similarly dropped to the lowest point seen in years. Although Argentina turned toward the US as an alternative trading partner, Trump’s protectionist policies do not bode well for trade between the two nations.

In addition to accepting IMF conditionality, Argentina will likely reform the charter of the central bank (the Central Bank of the Argentine Republic, or the BCRA) to increase its independence from the government. The BCRA will also stop transferring money to the treasury, a practice that drives inflation up even higher.

Argentina must clearly work to stabilize inflation, re-attract foreign investment, and rebalance its budget. Of course, this is easier said than done, but the incoming loans from the IMF should allow the government to settle at least some of its debt. But only time will tell as to how even more austerity measures will affect civilians, especially workers, and whether they will accept these conditions or take their discontent out onto the streets on an even greater scale.

Featured Image via Wikipedia

About Hyeonju Kwon

Hyeonju is a passionate environmentalist who loves to spend her time outdoors when she is not writing. She is also an avid yogi, hiker, reader, and bubble tea drinker. She finds that traveling is the best source of inspiration for virtually all things in life.

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