One month after President Macri asked the IMF a second time for help, the Fund’s staff agreed to grant an additional USD7.1bn to Argentina, increasing the overall envelope to USD57.1bn. More importantly and as we expected, it allowed the frontloading of an additional USD19bn until the end of 2019. It provides immediate relief to the administration and to the country’s external financing needs (accepting the new fiscal targets and delaying the need to go to markets for financing to 2020). One key condition is adopting a “floating exchange rate regime without intervention,” a condition that led Central Bank governor Luis Caputo to resign earlier this week. Under Caputo, the Central Bank burned USD10.2bn in reserves between July and September, i.e. two thirds of the first USD15bn IMF disbursement. The new governor adopted a no-intervention zone (a range of ARS34 to ARS44 per USD). This makes the ARS more flexible, but not freely floating. For the real economy, a recession is underway, and as IMF Managing Director Christine Lagarde put it, for the administration the “effort is just beginning.” What to watch next: the IMF Executive Board approval process and in particular the IMF staff report, an updated assessment on the Argentine economy and its financing needs under the updated program.
