Argentina’s asset bleeding stopped after the International Monetary Fund said it gave the country its “full support.”
Investors were finally pacified after a week marked by a surprise announcement that Argentina is seeking to expedite payments from the IMF as part of a record $50 billion credit line agreed upon in June.
Jitters about lack of detail in a Wednesday announcement and in the government’s plans to tackle the fiscal deficit led to a savage market selloff, in which the Argentine peso dropped 18 percent and borrowing costs soared to the highest since President Mauricio Macri took office in 2015 promising to return the country to normality.
“The IMF headline made a huge difference, assuring the market that they’re standing behind Argentina,” said Roger Horn, senior emerging market desk analyst at SMBC Nikko Securities America. “We’ve seen a big change in investor sentiment.”
The peso gained 1 percent on Friday to 37.25 per dollar in afternoon trading. Bonds pared losses from earlier in the day, snapping four days of declines in prices.
Argentina’s loan agreement in June was the biggest in IMF history, but it didn’t stop the peso from continuing to weaken over the following months, leading to investor concerns that it wouldn’t be able to meet its financing needs for next year. On Wednesday, Macri said it had asked the IMF to receive early disbursements of the credit line. Nine hours later, the IMF said that it was reentering talks with the government to address the request.
Treasury Minister Nicolas Dujovne told reporters late Thursday that the government will release its plan for a “substantially lower” deficit target for 2019, below 1.3 percent of GDP, on Monday. No details were provided. He will then travel to Washington to meet with Fund officials. IMF Director Christine Lagarde confirmed that she plans to meet Tuesday with Dujovne to review details of a loan agreement to the country.
Greylock Capital Management said the week’s selloff “was somewhat of a blip” given the backing that the country continues to receive from the international community and that it’s not a bad time to add exposure.
“It’s really important to Washington and international institutions that Argentina stay stable,” said Hans Humes, Greylock’s chairman and CEO, said on Bloomberg TV. “That they be constructive is not a surprise, it was a matter of timing. The question is what are they going to ask in economic policies in exchange for the money to backstop the markets,” Greylock added.
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