Argentina peso rises as IMF sees progress


Sep 19, 2018-

Argentina’s battered peso currency inched higher and the risk of its bonds defaulting declined on Monday after the government unveiled its budget plan and the IMF said “important progress” had been made on revamping the country’s standby loan agreement.

The peso rose 0.76 percent to close at 39.57 to the US dollar and country risk tightened by 10 basis points after the government released its 2019 budget proposal, which pledges to erase the primary fiscal deficit next year. The deficit is expected at 2.6 percent of gross domestic product this year.

The currency has lost over 6 percent of its value against the dollar this month and more than half its value so far this year, as confidence collapsed in Argentina’s ability to make its 2019 debt payments. But market sentiment has improved in recent days. President Mauricio Macri’s budget bill aims to use increased taxes on exports as well as spending cuts to bring about fiscal equilibrium, a formula that some analysts say could get the country through next year without major disruptions. Cuts have already sparked protests and relying on them alone would likely heap political pressure on Macri as he heads into his October 2019 re-election campaign.

The business community is expected to reluctantly accept the export tax hikes as the price of keeping Macri, a free-market advocate, in power. The JPMorgan Emerging Markets Bond Index Plus (EMBI ), which measures the perceived likelihood of default against safe-haven US Treasury bonds, pegged Argentina at a spread of 651 basis points on Monday, 5 points tighter than on Friday, and more than 120 tighter than 773 at the start of the month.

The country’s central bank said on Monday that, based on preliminary estimates, its international reserves are at $49.6 billion dollars, down from $63.9 billion last January, but far from the all-time low of $9 billion the country saw in August 2002.

The budget bill projects an average exchange rate of 40.1 pesos to the dollar in 2019 and forecasts an economic contraction of 2.4 percent this year and 0.5 percent in 2019.

Published: 19-09-2018 08:54

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