Argentina reached an agreement with the People’s Bank of China to expand the foreign exchange swap of US$1.7 billion that will allow it, with a loan from the Development Bank of Latin America and the Caribbean (CAF), to pay US$2.7 billion to the International Monetary Fund (IMF).
“20 of the 21 member countries of the Latin American community approved a distribution of US$1 billion, allowing the payment to be completed without utilizing the country’s precious dollar reserves at the Central Bank,” Argentina’s Economy Minister, Sergio Massa, said.
“I want to guarantee you that Argentina will not withdraw a single dollar from its reserves to pay today’s wage,” Massa said in a televised speech.
“Our challenge is to continue taking care of reserves, maintaining the level of activity, and importing intermediate and final goods that are fundamental for the functioning and production of the Argentine economy,” he explained.
The country faces a severe economic crisis, with projected inflation around 140%, a fiscal deficit, and a drop in reserves at its central bank. The dollar shortage was compounded this year by a historic drought that caused about US$20 billion in damage.
The deal, which still needs approval from the IMF’s board, relaxes some program requirements because a devastating drought has created a “very challenging” economic situation in Argentina, causing the country to miss some financial targets set in late June.
To fight inflation and sustain demand for pesos, the IMF has urged authorities to ensure that interest rates remain “sufficiently positive in real terms.”
In contrast, it set a more modest reserve accumulation aim of roughly US$1 billion by the end of 2023, down from the prior US$8 billion target set in March.
