Argentina Bailed Out With Biggest Ever Loan In IMF History

Just a few weeks after Argentina became ground zero for the coming Emerging Market crisis, when its currency suddenly collapsed at the end of April amid soaring inflation, exploding capital outflows and a central bank that was far behind the curve (as in "13% of rate hikes in a week" behind)...

... the IMF has officially bailed out the country - again - this time with a $50 billion, 36-month stand-by loan, and coming in about $10 billion more than rumored earlier in the week, it was the largest ever bailout loan in IMF history, meant to help restore investor confidence in a nation that, between its soaring external debt and current account deficit, prompted JPMorgan to suggest that along with Turkey, Argentina is in effect, doomed.

As the JPM chart below shows, the country’s total budget deficit, which includes interest payments on debt, was 6.5% of GDP last year, much of reflecting a debt binge of about $100 billion over the last two and a half years. The primary fiscal deficit in 2017 was 3.9%.

The loan will have a minimum interest rate of 1.96% rising as high as 4.96%.

“We are convinced that we’re on the right path, that we’ve avoided a crisis,” Finance Minister Nicolás Dujovne said at a press conference in Buenos Aires. “This is aimed at building a normal economy.”

Dujovne said that about $15 billion from the credit line would be immediately available to Argentina after the package is approved by the IMF’s board, which is expected on June 20. The rest would be dispersed as needed as Argentina meets its targets.

Shortly after the news the loan was finalized, Dujovne made some additional, more bizarre comments, saying that "the amount we received is 11 times Argentina’s quota, which reflects the international community´s support of Argentina," almost as if he was proud at just how insolvent his country "suddenly" become. He was certainly delighted that, in his view, Argentina is now "too big to fail", and received not only this loan as a result...

"It’s very good news that the integration with the world allows us to receive this support."

... but also hinted that the international community would also foot the bill for all other upcoming Argentinian bailouts. And if the country's history is any indication, there will be plenty more, as well as the occasional military coup for good measure.

According to Bloomberg, Argentina will see 30% of the funds a day or two after the Fund’s June 20 board meeting, and in typical IMF-bailout fashion, a form of austerity will be imposed on what was once Latin America's richest nation: as part of the agreement, the country will now target a fiscal deficit of 1.3% of GDP in 2019 and 2.7% this year, with a fiscal balance targeted for 2020 (good luck). And since the previous targets of 2.2% and 3.2%, were almost as laughable, this latest IMFian austerity package not only has zero chance of ever being achieved, but if Greece is any indication, it will make the Argentina crisis far worse. The government has also set a new inflation target of 17% in 2019 - It's considered low - declining to 13% in 2020 and 9% in 2021.

And the biggest joke, as part of the program, Argentina will agree to accelerate the pace at which it reduces the government deficit. The nation spends more than it collects in revenue and imports more than it exports, creating fiscal and current-account shortfalls that leave Argentina vulnerable to fluctuations in its currency. But, thanks to the even more idiotic policies of central banks, Argentina managed to sell a 100 year bond last year, demonstrating just how stupid some managers of "other people's money" really are.

“This is a plan owned and designed by the Argentine government, one aimed at strengthening the economy for the benefit of all Argentines,” IMF Managing Director Christine Lagarde says in the statement which can be found on the IMF's website.

To take effect, the deal reached between the IMF’s staff and Argentine authorities still requires the approval of the IMF’s executive board.

Oh, and thank you American taxpayers: the IMF’s largest shareholder, the U.S., said in a statement Thursday from Treasury Secretary Steven Mnuchin that it supported the program, according to the WSJ.

“The size of the package should provide relief, but implementing the program entails significant challenges and will require skillful political leadership,” said Martin Castellano, the head of Latin America research at the Institute of International Finance.

Argentina was bailed out by the IMF for the second time in 2 decades after three rate hikes pushed borrowing costs above 40% but failed to halt a plunge in the currency. The peso fell 25% against the dollar this year to trade at 24.9850 on Thursday, while capital outflows soared.

Central Bank President, Federico Sturzenegger, said the bank will continue to intervene in currency markets in times of “disruptive movement" although the central bank will not target inflation this year, he said. Meanwhile, the government has agreed to send a bill that gives the central bank more autonomy, and as a result it wil no longer transfer funds to the Treasury. 

"We’re convinced that we’re on the right track, that we managed to avoid a crisis, gather support for the program we already had and that has been in place since Dec. 2015, which looks to build a normal economy, reduce poverty and protect the vulnerable," Dujovne said, echoing what Greece said after its first bailout 8 years... and its second... and its third.

Gerry Rice, an IMF spokesman, speaking Thursday before the details of the bailout were announced, told reporters that the IMF is “not seeing negative spillovers to other countries at this point.”

Well, he may want to take a look at Brazil.

* * *

As for what happened the last time the IMF bailed out Argentina in the early 2000, the following 2004 article from the Telegraph tells you all you need to know why when a nation is desperately in need of deleveraging, giving it another $50 billion in debt is generally a bad idea.

IMF admits mistakes in Argentina crisis

By Edmund Conway12:01AM BST 30 Jul 2004

The International Monetary Fund yesterday admitted that its mistakes helped plunge Argentina deeper into the red during the currency crisis that crippled the country's economy three years ago.

In a report published yesterday by its independent evaluation office, the IMF said it ought to have prevented the Argentine government from following poor economic policies.

"IMF surveillance failed to highlight the growing vulnerabilities in the authorities' choice of policies and the IMF erred by supporting inadequate policies too long," it said.

The financial meltdown that reached a climax in 2001, causing the country to default on $132 billion of foreign debt, was worsened by the government's vain attempts to maintain the Argentine peso's peg against the dollar. The IMF ploughed money into the country to help it sustain the peg, pledging an extra $22 billion as late as the end of 2000.

"In retrospect, the resources used in an attempt to preserve the peg could have been better used to mitigate some of the inevitable costs of exit," the report said.

Although it became clear to some IMF staff that the country's currency plan was flawed in the 1990s, they did not report their doubts to their board for fear of triggering a speculative attack on the peso. The executive board, for its part, ignored staff complaints that Argentina was not reforming its economy satisfactorily.

Both the IMF and the US touted the country as Latin America's economic success story but the fund maintained its support despite the fact that Argentina missed its fiscal targets every year since 1994. Analysts have also claimed that the IMF's demands that Argentina raise taxes in 2002 worsened the crisis. The conclusions will come as a blow to the institution, whose role has come under increased scrutiny in recent years.

Yesterday the Argentine finance minister, Roberto Lavagna, argued that the country should not be pressed too hard for repayments of its current three-year $13 billion loan. He said the IMF was now insisting it reformed its economy "in a way absent throughout the 90s" and "under a schedule that is oblivious to the political realities of the country".

Good luck, and some advice to Argentina: this time try to prevent Elliott Management from buying up your debt at distressed prices.

Comments

ravolla wadalt Fri, 06/08/2018 - 00:21 Permalink

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In reply to by wadalt

Expat Leakanthrophy Fri, 06/08/2018 - 03:42 Permalink

Since when does being white confer intelligence?  Trumpturds are mostly white but you would be hard pressed to find a dumber, more ignorant and more racist bunch of fucktards on the face of the planet.  I would match up any random South American against any graduate from any Tennessee or West Virginia state college in any test of intelligence you choose. 

In reply to by Leakanthrophy

Ace Ventura Expat Fri, 06/08/2018 - 12:29 Permalink

Obamaturds are mostly black but you would be hard pressed to find a dumber, more ignorant and more racist bunch of fucktards on the face of the planet. I would match up any random South American against any graduate from any California or New York state college in any test of intelligence you choose.

See? I can do that too!

 

In reply to by Expat

atomic balm AnngeloJamaica Fri, 06/08/2018 - 01:51 Permalink

50 billion of what?  (((they))) "created" it ex nihilo.  how does one create something from nothing, when that something is itself made from nothing?  they juggle the books

 

what is definition of a dollar?  used to be 1/20 troy ounce of gold.  to day nothing

 

how can contracts be made whole?  say an item is exchanged for 20 dollars.  what is 20 dollars?  it is no longer legally defined

US dollar is same as zimbabwe dollar- worthless gibberish

all contracts in dollars are bogus, as the dollar cannot be defined.  I will google on it right now [you too]  https://tinyurl.com/y7gb3zcg

 

"What is the legal definition of a dollar?"  here is the first one:

 

Dollar Law and Legal Definition. ... Such abbreviation is used in order to distinguish the USD from other dollar denominated currencies and from other countries that use the $ symbol. The word “dollars,” under Section 9 of Article 1 of the United States Constitution, is a reference to the Spanish milled dollar.

 

Thus, at the time of ratification of the Constitution, no person with any understanding of law and monetary affairs would have attributed to the noun "dollar" a meaning other than (for example): "a silver coin with a value of such-and-so grains of precious metal when at full weight."

 

Jan 8, 2008 - The Legal Definition of a "Dollar"(& Its Importance to You). [Editor's Note: This is a blockbuster story. The following letter was sent to me on Dec.

 

The (((Political Class))) has refused to tell the truth and (((learning institutions))) have refused to teach Americans the legal definition of a “dollar”. Elections were once ...

 

so, if today's dollar cannot be defined- ALL CONTRACTS ARE VOID. [please look at the above link]

In reply to by AnngeloJamaica

snblitz atomic balm Fri, 06/08/2018 - 15:38 Permalink

What the dollar was and what it is now:

https://finitespaces.com/2018/04/07/why-we-create-sound-money-and-governments-wreck-them

For a contract to be valid in the US value must be exchanged between the parties.

As atomic balm points out something created from nothing has no real value, and thus contracts involving the exchange of nothing for something cannot be enforced.

The funny thing is, you can get courts around the US to enforce these sorts of contracts all the time.

In reply to by atomic balm

Scipio Africanuz ZippyBananaPants Fri, 06/08/2018 - 06:51 Permalink

Bravo! The USA is now playing geopolitics like pros! Argentina is in USA backyard and thus, of great geopolitical significance. This is how you win friends, and acquire influence. The hemisphere has great economic potential, and in tandem with other hemispheres, we just might be able to pull back from the brink of economic armageddon.

The onus now, is on Argentina to manage this lifeline prudently, make the necessary sacrifices, and get Argentina back to the economic powerhouse it used to be! Next, Brazil!

Wonderful news, on the geopolitical front, wonderful!

Argentina! Ball is in your court!...

In reply to by ZippyBananaPants

gdpetti ZippyBananaPants Fri, 06/08/2018 - 10:31 Permalink

Same here... in a larger format size.. so disappointed.

As for Argentina... the IMF is just keeping their club's game going... alive... by bailing out the system.. especially since we did a regime change op there a year or so ago... gotta support 'our guy'.... 'our team'.. 'our system'... our OWO... which is hanging by a thread these days.... and the East isn't going to replace it as they hope to... the 'field of play'... is changing... anyone remember ever hearing about 'sink holes' growing up? How about those 'thousand year storms'? Seems they are happening every few years now.... hint, hint!

In reply to by ZippyBananaPants

AurorusBorealus Bill of Rights Thu, 06/07/2018 - 23:22 Permalink

What a joke Zerohedge.  Let us establish some facts instead of this mountain of garbage that have posted above.

The debt to GDP figures quoted above are achievable in reality.  The current annual debt to GDP of the Argentine federal government is 3.9%. https://tradingeconomics.com/argentina/government-budget

Total Argentine national debt to GDP is 54.2%. https://tradingeconomics.com/argentina/government-debt-to-gdp

Let us compare Argentine national debt to Italy: 131%. https://tradingeconomics.com/italy/government-debt-to-gdp

Let us compare Argentine national debt to France: 96.5% https://tradingeconomics.com/france/government-debt-to-gdp

Let us compare Argentine national debt to Germany: 68.1% https://tradingeconomics.com/germany/government-debt-to-gdp

Yes. Argentina's national debt is less than Germany's.  Who is in need of deleveraging?

The purpose of this loan is the low interest, not to "bailout" Argentina, which is, as I have demonstrated above empirically, less in need of a "bailout" than Germany.  The low interest will allow the Argentine government to convert current high-interest debt to IMF-backed low interest debt.  This will reduce the annual GDP deficits as debt service payments are reduced and make the above targets very achievable.  This will also allow for a lower rate of inflation.  Macri's entire presidency and program depends upon lowering inflation next year.  If he fails to do so, he will lose the next election.  If he succeeds, Argentina will be in a dominant economic position.

Take a close look at Argentina's balance of trade. Here are the imports by category.https://tradingeconomics.com/argentina/imports-by-category .  You want to notice that machinery is one of the major imports.  This is mostly productive infrastructure for manufacturing and agriculture.  Another major category is electronics, from China.  Some of the machinery recently imported is for the manufacture of electronics domestically.  Some is for light and heavy industry.  You will note that Argentina's manufacturing exports have risen markedly in the past 3 months. https://tradingeconomics.com/argentina/balance-of-trade .  This is partly the result of increased domestic manufacturing from the recently imported machinery.  You will notice who are among Argentina's largest trading partners: the U.S. and China.  https://tradingeconomics.com/argentina/exports-by-country .  Argentina has significant inflows of USD and Yuan.

The real play here is long Argentina, and that is exactly why Zerohedge is publishing Wall-Street propaganda to steer investors away from Argentina.  Everything Zerohedge once said about Goldman and JP Morgan defrauding their clients is now true of Zerohedge itself.

In reply to by Bill of Rights

WallHoo AurorusBorealus Fri, 06/08/2018 - 08:28 Permalink

Meanwhile, the government has agreed to send a bill that gives the central bank more autonomy, and as a result it wil no longer transfer funds to the Treasury. 

 

Fernada looks better and better by the day...

 

How do you fuck up so much that you need a bailout at 54.2%(debt) to gdp??

 

Im not saying that argentina deserves better or worse,im saying that all that is planned...

 

The bad think is that unlike my coutry,where there used to be a party that reached up to 120% of gdp,argentinians will be saddled with debt from the 54.2% mark...Not even a party...

 

I dont know what is happening with the argentinian economy,the article says nothing and speaks of the public debt mumbo jumbo ignoring prety much everything.So without knowing anything im gonna assume that the prime minister and his gorvement "liberalised his economy" and that comercial banks have a free hand at issuing as many loans as they want...At least that would explain the soaring inflation...Rich people are getting out and the peasants will be saddled with the extra (bailout) debt.

In reply to by AurorusBorealus

foreignlander AurorusBorealus Fri, 06/08/2018 - 09:01 Permalink

Good try.  Nice story.  The MOFO's that took over the management of Argentina, aka, the real owners of the country, are back to the same old same old re-fried 'Washington Consensus" pedal to the metal neo-liberal recipe: open importation, mostly from the industrial empire: China.  That's a death sentence to the PYMES = mittlestand = small industry = the largest aggregate employers. When was the last time Argentina posted a Current Account Surplus pal?  Pray tell.  How is it gonna get her hard currency to service the debt?  Would that have any bearings in this desperate attempt to get a IMF bail out?  Another commandment in the neo-liberal gospel being applied by the insipid and not too bright president of Argentina is wealth transfer from the bottom up via tax reduction to the richest segment of society: soy exporters.  The moon size of the hole left in the budget ain't gonna be filled with a bigger tax burden on the shrinking middle class. Neither will the service of the debt, now sooo much bigger.  It does not matter how much the mofos cut pensions, R&D, education, school closings, public works, health care and whatever they can get their dirty hands on because, the service of the debt as of today is going to be the biggest chunk of the budget.  Besides, there's not record, not a single case, in the history of the IMF where any country came up ahead after their intervention.  The future of Argentina is Greece.  Simple as that.  Furthermore, there's no record in the history of civilization where taking in more debt was a solution for debt itself.  Because, debts always grow at a much faster pace thanks to the magic of compound interest, than what the economy can grow at.  That's why there was such a thing as jubilee since the time of Hammurabi 'till the time of Christ.  They knew exactly what's going on.

Listening to president Macri or any of his minister talk about "now we're gonna grow and increase employment" is beyond revolting in their attempt to save face and their own asses treating the citizenry against all evidence and intelligence like imbeciles.  And may be they are.

Lastly, I don't have time to check on your links to Tradingeconomics because not only do I have to go to work but it doesn't quite matter the info itself if you don't know how to interpret it.

Comparing Argentina with Germany for Pete's sake is beyond glib.  Argentina is more than ever before an agro exporter of mainly soy bean.  That's "the model" since the soy complex came into the scene in force under the Kirchners and nothing has change only got worse.  That alone can't keep 40 + million ppl employed, housed and fed.  Germany is the Mercantilist nation par excellence.  It has the biggest current account surplus in the world, it can afford to have a higher debt to GDP ratio or as high as they want it to be.  Just like the USA.  And they can print their own hard currency, the Euro.  Can Argentina do that?  The PIGS can also have a much higher ratio of debt, for now anyway, as long as the ECB buys all their worthless bonds and the rates are kept real negative rates.  That won't last for ever, but it works for now.  Who's buying Argie bonds now?

Listen, you may live down there, but you live in a bubble of your own making.  You can hit Zero Hedge all you want but look in the mirror.  Your effing government, a total puppet of big economic power centers, including and specially, Wall Street is the one that keeps digging the hole.  Your posture is kind of hilarious.  What can be expected of a president that appoints a Rabbi to the Ministry of the Environment?  Another imbecil that knows shit about the environment and have to cover up clowning dressed like a lettuce.

You keep grasping at straws with your posts about Argentina.  Gotta up your game.

In reply to by AurorusBorealus