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Abu Dhabi, UAEWednesday 14 November 2018

IMF approves Argentina bailout increase to $56.3bn

National currency has risen in the past month on government's fiscal measures

The IMF has raised the amount of aid it is giving Argentina. Reuters
The IMF has raised the amount of aid it is giving Argentina. Reuters

The International Monetary Fund approved plans to increase Argentina’s bailout package to $56.3 billion, permitting the South American country to draw down a larger amount of funding support than previously agreed.

“The authorities have requested the use of this IMF financing as budget support,” the Washington-based lender said on Friday.

Argentina is grappling with high foreign debts and has seen its national currency the peso lose more than 50 per cent of its value this year. The country’s central bank governor Luis Caputo resigned in September while bailout talks were ongoing with the IMF, and the country had seen nationwide protests at government austerity and high inflation, which is expected to top 40 per cent this year.

The central bank has since implemented a currency band, allowing the peso to float between about 34 to 44 pesos to the US dollar. The bank is also implementing daily banknote sales to remove excess cash in the system and bring down inflation. The peso is now up more than 12 per cent in October.

The IMF said on Friday it concluded its first review of Argentina’s economic performance under the 36-month bailout plan that was approved on June 20.

Following the review, the Argentinian authorities will receive about $35.8bn for the remainder of this year and 2019 – a $19bn increase from the original arrangement. It already received $15bn in June. The remainder will come in 2020 and 2021.

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The new bailout plan is intended to contain the supply of money and keep short-term interest rates at their currently high levels, aiming to rapidly bring down inflation, the IMF said in September.

“A central element of the authorities’ plan will be to reach budgetary balance by 2019, one year earlier than previously intended, and to move to a 1 per cent primary surplus in 2020,” IMF managing director Christine Lagarde said last month.

“These decisive steps will reduce the government’s financing needs and bring down public debt.”

Argentina is awaiting congressional approval of its 2019 budget which is expected to further reduce the country’s fiscal plight.