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Argentina kneels again to the IMF

After 15 years of non-existent relationship, the South American country once again requests a rescue loan from the international organization to overcome the crisis generated by the excessive public spending

Argentina kneels again to the IMF

Argentina could not contain the depreciation of the Argentine peso against the dollar, despite all the measures taken. Its last decision was to request a rescue loan from the International Monetary Fund (IMF) after 15 years. President Mauricio Macri announced on Tuesday, May 8, in a televised message, that he had spoken with the president of the IMF, Christine Lagarde, to ask for her support. Macri said that his country needs the money, it is believed that 30,000 million dollars will be requested to overcome an international context "that is increasingly more complex", with higher interest rates.

"The aid to the IMF implies the payment of a very high political cost to Macri, at the head of a country that during years accused the fund of being behind wild adjustments and great economic crises", said Federico Rivas for the newspaper El país of Spain. The loan that the Argentine Government will request from the body chaired by Christine Lagarde will have adjustment, labor flexibilization and the privatization of pensions as measures to counteract the financial errors of the last twenty years, Rivas pointed out.

Excessive spending in the country

Argentina has an economy vulnerable to foreign situations. In his message, Macri clearly described the source of the problems. "We implemented a gradualist economic policy that would solve the disaster that the previous governments left us in the public accounts. That depends on the external financing and for the last two years we have had a favorable context. But this is changing due to different factors: interest rates rise, the oil goes up, the emerging currencies have been devalued", he said.

The government had already announced last week that it would cut near 3 billion dollars of public spending to reduce dependence on foreign money. However, Argentine analysts predicted that this would not be enough. Investors, mainly those who have seen nationalizations in other countries, no longer trust the Argentine economy, despite the international support that Macri has deserved since coming to power.

"Argentina's central problem is the mismanagement of public spending," said the economist José Luis Espert. The state spends too much and far above what it perceives in income, a situation that worsened during the 12 years in which the Kirchners ruled. "Argentine public spending is above 40% of GDP. Before the arrival of the Peronist couple, the expense represented 23%. Macri has lowered the expense by just a couple of percentage points. The fiscal deficit is 7% of GDP, so the State is still indebted", says Espert who said that in order for Argentina to get out of the looming crisis it must reduce its spending to no more than 25% of its GDP, a average that the country had until 2002.

Argentina and the IMF

The recent history of Argentina recalls that after an IMF official had to be escorted by the police in the country in 2004 to try to negotiate the default of 2001, the South American country would move away from the international organization. Kirchner paid it 9,500 million dollars in cash and from that moment the country did not have any more loans, apart from the fact that the technicians were not allowed to review the accounts of the country as indicated in Article IV. Then, during Cristina Fernández de Kirchner's administration, the IMF censorship would come to Argentina because the Consumer Price Index (CPI) prepared by the INDEC was not reliable.

Now in 2018, a managing Director of the IMF returned to visit the Casa Rosada to meet with President Mauricio Macri. It is hoped that the rescue will help to contain the crisis that the gradual measures have not been able to stop.

On the other hand, the rejection of the IMF has united the divided Argentine opposition. Peronist legislators, socialists, left have agreed to criticize harshly Macri for the rescue requested. The left has warned that the debt contracted by the government will punish the middle and lower classes, as has happened in previous crises. "The return to the International Monetary Fund will mean more adjustment against the working people. More indebtedness in exchange for worse conditions of life of the popular majorities," said Nicolás del Caño deputy of the Frente de Izquierda.

 

Latin American Post | Carlos Eduardo Gómez Avella

Translated from "Argentina se arrodilla nuevamente al FMI"

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