The International Monetary Fund said it will stand by Argentina after the government authorized currency controls on Sunday in an about-face by President Mauricio Macri, who had previously lifted many protectionist practices of his predecessor, Cristina Fernandez de Kirchner.
The central bank is now authorized to restrict purchases of dollars as it burns through its reserves in an effort to prop up the peso currency, the government said in a decree published in its official bulletin.
Hours after the decree was published, a spokesman for the IMF, with which Argentina has a US$57-billion standby agreement, said Fund staff was analyzing Argentina’s “capital flow management measures with the aim of protecting exchange rate stability and the savers.”
“Staff will remain in close contact with the authorities in the period ahead and the Fund will continue to stand with Argentina during these challenging times,” the spokesman said.
After opposition candidate Alberto Fernandez and Fernandez de Kirchner, who is now his vice presidential candidate, pulled off a stunning upset in the Aug 11 primary vote, bonds, stocks and the peso currency plummeted on market fears over a potential return to the interventionist policies of Fernandez de Kirchner’s previous government.
Macri’s government and the central bank are trying to stabilize the economy as the Oct 27 presidential election looms, for which Fernandez is now the front-runner.
The central bank has burned through nearly US$1 billion in reserves since Wednesday in an effort to prop up the peso. But the intervention did not have the desired impact and risk spreads blew out to levels not seen since 2005, while the local peso currency extended its year-to-date swoon to 36%.
The central bank announced on Friday that banks would need to seek prior authorization before distributing their earnings, in order to “avoid any lack of money” and safeguard the liquidity of Argentina’s financial system.
Last week, Treasury Minister Hernan Lacunza said the government would negotiate with holders of its sovereign bonds and the IMF to extend the maturities of its debt obligations as a way of ensuring Argentina’s ability to pay.