The Avenida 9 de Julio in the city center of Buenos Aires - Photo by IMF

JAKARTA (TheInsiderStories) – The Argentine authorities and International Monetary Fund (IMF) have reached an agreement on a 36-month Stand-By Arrangement amounting to US$50 billion, equivalent to about SDR 35.379 billion or about 1,110 percent of the country Argentina’s quota in the IMF, said the agency.

Before make the decision, the Executive Board of the IMF has met several time with Argentina’s authorities. The last meeting in Washington D.C. for an informal meeting to request for financial support. The meeting was chaired by IMF Managing Director Christine Lagarde.

Argentina is now facing significant financial volatility, in part as global financial conditions have tightened and also following the drought that undermined Argentina’s agricultural output. Followed the current situation, the Argentine authorities requested IMF’s support to help counter this market volatility and protect growth, job creation, and social cohesion in Argentina.

“Today, I conveyed to the Executive Board the Argentine authorities’ intention to request an exceptional access Stand-By Arrangement that would underpin their economic program. This will be Argentina’s economic program, one that has full ownership of President Macri and his government,” the IMF staff said.

The Argentina’s authorities stressed that goals of the program would include creating a clear path to strong, sustained, equitable growth and robust job creation, restoring market confidence through a clear macroeconomic program that lessens financing needs and puts public debt on a firm downward trajectory, and importantly, protecting society’s most vulnerable during this transition.

The staff said, “We fully endorse those goals,” by adding, the IMF team and the Argentine delegation are in discussions and these will continue in Washington, D.C. in the period ahead.

This staff-level agreement will be subject to approval by the IMF’s Executive Board, which will consider Argentina’s economic plan in the coming days. The authorities have indicated that they intend to draw on the first tranche of the arrangement but subsequently treat the loan as precautionary.

Managing Director IMF Christine Lagarde

Lagarde stated, “As we have stressed before, this is a plan owned and designed by the Argentine government, one aimed at strengthening the economy for the benefit of all Argentines. I am pleased that we can contribute to this effort by providing our financial support, which will bolster market confidence, allowing the authorities time to address a range of long-standing vulnerabilities.”

She continued, as part of this support, both the IMF and the Argentine government intend to work together to ensure steps are taken, and the resources are fully available, to protect the most vulnerable in the population as economic reforms move forward.

“At the core of the government’s economic plan is a rebalancing of the fiscal position. We fully support this priority and welcome the authorities’ intention to accelerate the pace at which they reduce the federal government’s deficit, restoring the primary balance by 2020,” said Lagarde.

By adding, “This measure will ultimately lessen the government financing needs, put public debt on a downward trajectory, and as President Macri has stated, relieve a burden from Argentina’s back.”

She continued, IMF support the redoubling of efforts to lower inflation. In this vein, Lagrde endorse the Central Bank’s decision to adopt realistic and meaningful inflation targets and their commitment to maintain a flexible and market-determined exchange rate.

“We are also encouraged by the authorities’ commitment to ensure legal independence and operational autonomy for the central bank and to immediately put an end to central bank financing of the federal deficit,” she stated.

Since President Mauricion Macri’s administration took office, Argentina has been engaged in a fundamental and welcome transformation of its economy. Finance Minister Nicolas Dujovne quoting by AFP said on Thursday (07/06), the country looked to the IMF to avoid a crisis by adding there would be an “immediate” payment of $15 billion.

“We are engaged in the construction of a normal country. It support for our program,” he said.

At the end of March, Argentina suffered a crisis of confidence that caused it to lose more than $10 billion of central bank reserves and saw the peso plunge by nearly 20 percent.

That led Latin America’s third-largest economy to ask for IMF assistance to help the country face mounting inflation, budget deficits and a weakening currency.

Argentina has set a target of 17 percent inflation for 2019, 13 percent for 2020 and 9 percent for 2021. Argentina’s annual inflation target was 15 percent for 2018, but had reached almost 10 percent by April.

The government has so far not managed to limit persistently high inflation, which has exceeded 20 percent for more than a decade, a key aim of President Macri’s center-right government.

A path to reduce the budget deficit and balance the budget by 2020 was also agreed with the IMF. The agreement revises the budget deficit target, before debt payment, to 2.7 percent of GDP in 2018, compared to 3.2 percent previously forecast.

Opinion polls said as many as 75 percent of Argentinians opposed any agreement with the IMF, which many link to painful memories of past economic and social crisis that culminated in 2001 with a sovereign debt default, for which many Argentinians blame the IMF.

Thousands demonstrated in Buenos Aires in late May against an IMF bailout, marching to government offices and brandishing anti-IMF banners.