IMF agrees to $50 billion deal to help Argentina's economy

Argentine finance minister Nicolas Dujovne said the approved loan was 11 times IMF's quota. EPA  JAVIER CAAMANO

The Argentine government and the International Monetary Fund reached on Thursday – after three weeks of arduous negotiations – an agreement that will authorize a “stand-by” credit line over 36 months of up to $50 billion to Buenos Aires, but in exchange the South American nation must reduce its deficit and inflation rate.

"We have agreed to a standby loan. of 50 billion USA dollars", Dujovne said at a press conference, adding that "it shows the support we have among the worldwide community, and it is very good news".

The IMF said the staff-level agreement would be subject to approval by the worldwide body's executive board, which will consider Argentina's economic plan in the coming days.

Under the terms of the agreement, Argentina has agreed to reduce its fiscal deficit to 1.3% of gross domestic product in 2019, down from 2.2% previously. The eventual goal is a 0.5% surplus in 2021.

As part of the agreement, Argentina has confirmed its plans to rein in public spending and tackle high inflation - the loan provides financial backing for the plans of President Macri. The South American country must pay back each disbursement in eight quarterly instalments, with a three-year grace period. "As part of this support, both the International Monetary Fund and the Argentine government intend to work together to ensure steps are taken, and the resources are fully available, to protect the most vulnerable in the population as economic reforms move forward".

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"We are going to reinforce the autonomy of the central bank", its chairman, Federico Sturzenegger, said at the news conference alongside the finance minister Dujovne. The central bank will also stop transferring money to the treasury, a practice known locally as the "little machine" that is seen as a major driver of incessant inflation. It comes amid an emerging market sell-off that has shaken developing economies around the world including Brazil, Turkey, Indonesia and Mexico and has forced central banks to hike interest rates.

"It is convincing and greatly exceeds expectations". "It is clear the country has capacity to pay". "We fully support this priority and welcome the authorities' intention to accelerate the pace at which they reduce the federal government's deficit, restoring the primary balance by 2020".

Argentina's annual inflation target was 15 percent for 2018, but had reached nearly 10 percent by April.

Of the total $5.65 billion available through those institutions, $2.5 billion is being extended by the IDB, $1.75 billion by the WB and $1.4 billion by the CAF-Development Bank.

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