June 20, 2018 / 8:35 PM / 10 months ago

IMF board approves $50 billion Argentina deal, disburses first payment

BUENOS AIRES (Reuters) - The International Monetary Fund’s (IMF) executive board approved a $50 billion (£37.9 billion) financing deal for Argentina on Wednesday and has disbursed the first tranche of $15 billion to the Argentine government, fund authorities said.

Christine Lagarde, Managing Director of the International Monetary Fund (IMF), and Argentina's President Mauricio Macri pose for a photo at the G7 Summit in the Charlevoix city of La Malbaie, Quebec, Canada, June 9, 2018. Argentine Presidency/Handout via REUTERS

The government intends to treat the remaining $35 billion as “precautionary,” IMF Mission Chief for Argentina Roberto Cardarelli told reporters, adding that any further disbursements would be subject to quarterly reviews by the board.

The South American country announced it was turning to the IMF in May after a run on the peso currency. The move has been politically risky for market-friendly President Mauricio Macri, as many Argentines blame IMF-imposed austerity policies for exacerbating a 2001-2002 economic crisis.

Macri’s government has pledged to accelerate its efforts to reduce a budget deficit as part of the stand-by arrangement. IMF Managing Director Christine Lagarde said the three-year plan was drawn up by Macri’s team, not imposed by the fund, and that it would ensure that social assistance spending does not fall.

“This is a plan that was designed and is owned by Argentine authorities,” she said in a press conference in Washington, D.C. “It has every chance to succeed if it is well-implemented.”

Lagarde added that new central bank Governor Luis Caputo, the former finance minister who replaced Federico Sturzenegger at the helm of the monetary authority last week, had assured her and other fund officials that he “fully endorses the directions and the policies that are included in the programme.”

Argentina’s letter of intent to the IMF was published Thursday and detailed its plans to balance the primary budget - which excludes debt servicing costs - by 2020 and make the central bank more independent. It was signed by Sturzenegger and Treasury Minister Nicolas Dujovne.

In his first public statements since the shakeup, Caputo said in interviews with local newspapers Clarin and La Nacion published on Wednesday that the arrival of the IMF funds would stabilise the country’s foreign exchange market.

Argentine markets were closed for a holiday on Wednesday.

Authorities plan to use half of the initial disbursement, or $7.5 billion, to finance the budget. The Treasury and Finance Ministry has said it will sell those funds on foreign exchange markets in daily pre-announced auctions.

Cardarelli said that Argentina’s monetary policy was likely to remain tight “in the near future,” which was necessary to tame inflation but would contribute to a slowdown in growth this year.

Reporting by Jorge Otaola and Luc Cohen; Editing by Daniel Flynn, Rosalba O'Brien and Cynthia Osterman

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