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Argentina burns its reserves and asks for early IMF help as the peso crashes

Argentina's peso tumbled 7.6 percent against the US dollar despite the central bank heavily selling reserves for a second day on Wednesday after the president asked the International Monetary Fund for early release of standby funds, shaking investors' confidence.
It was the biggest one-day decline in the peso since the currency was allowed to float in December 2015. It closed at a record low of 34.10 per US dollar and has lost more than 45.3 percent against the greenback this year, prompting massive central bank interventions.
Nerves are frayed in Latin America's number three economy as it struggles to break free from its notorious cycle of once-a-decade financial crises. The last recent one, which was punctuated by a 2002 debt default, tossed millions of middle-class Argentines into poverty.
The run on the peso prompted Argentina to turn to the IMF for a $50 billion credit line earlier this year. But given the peso's continued depreciation, which makes the country's dollar-denominated debts more expensive to pay, investors are increasingly concerned that may not be enough.
"We have agreed with the International Monetary Fund to advance all the necessary funds to guarantee compliance with the financial program next year," President Mauricio Macri said in a televised address on Wednesday. "This decision aims to eliminate any uncertainty." A spokesperson for the IMF had no immediate comment.
Argentina burns its reserves and asks for early IMF help as the peso crashes

Argentina's President Mauricio Macri

Credit:
 MARCOS BRINDICCI/Reuters
"Over the last week we have seen new expressions of lack of confidence in the markets, specifically over our financing capacity in 2019," Macri said.
Argentina has $24.9 billion in peso- and foreign currency-denominated debt payments due next year, according to official data.
If Macri was trying to calm investors, it did not work.
"The market is saying: 'Just the fact that you are engaging in this conversation makes me very, very nervous,'" said Daniel Osorio, president of New York-based consultancy Andean Capital Advisors.
The peso's decline has contributed to a jump in inflation, which hit a 12-month rate of 31.2 percent in July. The central bank has hiked interest rates to 45 percent and sold more than $13 billion in reserves, including $300 million in an auction on Wednesday, to halt the slide and clamp down on inflation.
All that, combined with budget cuts promised to the IMF that will slow down public works projects, is contributing to a recession that will result in an economic contraction of 1 percent this year, according to the government. That could hurt Macri's re-election prospects in next year's presidential race.
Argentina burns its reserves and asks for early IMF help as the peso crashes

A man with a sign reading in Spanish "Stop Macri" 

Credit:
 Natacha Pisarenko/AP
The signing of the IMF deal in June reduced the need for costly bond market funding and briefly steadied the peso. The government has since announced more than $2 billion in budget savings, a process Macri promised to continue.
"We will accompany the IMF support with all necessary fiscal efforts," said Macri, who was elected in 2015 on a free market platform after eight years of deep government intervention in the economy under previous President Cristina Fernandez.
Argentina's biggest union, the CGT, said on Wednesday it will call a 24-hour general strike on September 25 to protest Macri's fiscal belt-tightening measures. Two smaller unions said they will go on a 36-hour strike on September 24 to protest the IMF, which many blame for the 2002 crisis.
Macri has seen his popularity fall after reducing retirement benefits and cutting utility subsidies that people had grown accustomed to under Fernandez.
I know that these tumultuous situations generate anxiety among many of you. I understand this, and I want you to know I am making all decisions necessary to protect you.Mauricio Macri
Lowering subsidies was aimed at reducing Argentina's fiscal deficit. But the move boosted consumer prices by raising household water and heating bills.
"I know that these tumultuous situations generate anxiety among many of you," Macri said. "I understand this, and I want you to know I am making all decisions necessary to protect you."
It could get worse in the fourth quarter, Andean Capital's Osorio warned, as additional planned electricity, fuel and public transportation price hikes come into force.
"The closer you get to next year, that's when these will truly be felt in the pocketbook of Argentines," Osorio said. "As of now, there is no panic among the Argentine populace, but as this year ends that could change."
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