U.S. President Donald Trump on Tuesday backed Argentine President Mauricio Macri’s handling of a worsening economic crisis and encouraged his efforts to quickly win financing from the International Monetary Fund.
Argentina’s peso slid further as investors reacted with skepticism to Macri’s plans to cut the budget deficit, while an Argentine delegation arrived in Washington for talks with the IMF about accelerating its standby finance deal.
“I have confidence in President Macri’s leadership, and I strongly encourage and support his engagement with the International Monetary Fund to strengthen Argentina’s monetary and fiscal policies to tackle the country’s current economic challenges,” Trump said in a statement outlining a call he held earlier with Macri.
Argentina is struggling to break free from cyclical financial crises that have bludgeoned the country every decade over the last 60 years. The most recent, in 2002, tossed millions of middle-class Argentines into poverty and shook investor confidence in the commodities-reliant economy.
Trump said the United States supports Argentina “during this trying time.”
The Argentine central bank auctioned $100 million in reserves on Tuesday to help prop up the peso, which nevertheless fell 3 percent to 39.2 to the U.S. dollar. Last week alone, the currency lost 16 percent of its value.
Argentina’s Merval stock index was down almost 3 percent with traders citing doubts about the government’s ability to make good on new fiscal plans as Latin America’s third-largest economy slides into recession this year.
On Monday, center-rightist Macri announced new taxes on exports and steep spending cuts to eliminate Argentina’s primary fiscal deficit next year. In exchange, Macri is asking for early cash disbursements from the $50 billion standby deal he negotiated with the IMF earlier this year.
Argentina’s economy minister, Nicolas Dujovne, was due to meet IMF chief Christine Lagarde in Washington on Tuesday afternoon. A fund spokesman said it was too early to talk about details or timelines on a revamped IMF program for Argentina.
Trump’s backing for Macri is important because the United States is the largest member on the IMF’s 24-member executive board. The board would need to approve any new agreement with Argentina.
The U.S. president and Macri have known each other since before either became leader of their country. Real estate magnet Trump had business dealings with the Macri family.
Macri’s new economic measures were meant to assure investors that Argentina can pay its debts but financial markets remained wary of the government’s ability to push reforms through a restive Congress amid growing frustration on the streets of Buenos Aires.
“It’s hard for the market to believe that a country like Argentina can hit its new fiscal targets over the short term,” said Sebastian Cisa, with Buenos Aires-based brokerage SBS.
Argentina’s current IMF deal includes fiscal targets that Argentina says it wants to strengthen as part of its effort to gain the market’s trust. Those new fiscal goals are being negotiated in Washington this week.
IMF officials in Washington said they expected talks with the Argentine delegation to last a few days. The IMF has generally voiced support for Macri and his orthodox economic policies.
Dujovne has said that early cash disbursements from the IMF would allow the government to avoid going to the bond market for financing over the near term.
Faced with higher U.S. interest rates that siphoned off investors from emerging markets, contagion from a currency crisis in Turkey and a drought that wrecked harvesting of Argentina’s main cash crop, soy, the deficit left the country open to doubts about its ability to make next year’s debt payments.
The peso has lost about half its value against the dollar this year and Macri has struggled to get budget cuts approved.
When he tried cutting pension benefits late last year, protesters had to be driven back from Congress with tear gas and water cannon. “We had very ambitious goals, but the country was not ready for them,” Dujovne told Argentine television on Monday.
The current IMF deal calls for a primary fiscal deficit of 1.3 percent of gross domestic product next year. The new government proposal is to eliminate the deficit in 2019 while this year’s deficit target has been pared down to 2.6 percent of GDP from 2.7 percent.
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