Argentina peso firms as central bank intervenes, IMF voices support

BUENOS AIRES, (Reuters) – Argentina’s beleaguered peso bounced back slightly on Friday after the central bank auctioned $250 million in dollar reserves and the International Monetary Fund issued a strong statement of support for President Mauricio Macri’s government.

But with frustration rising over inflation of more than 30 percent and austerity measures required under a $50 billion IMF standby deal, Agriculture Ministry employees protested budget cutbacks and members of the opposition Citizens’ Unity party called for countrywide marches against Macri Friday evening.

The party’s leader, former President Cristina Fernandez, a proponent of government intervention in the economy, may run against Macri for president next year, raising further questions about the country’s economic prospects. She has, however, been tarred by a graft scandal marked by the jailing of several former officials.

Macri is caught between voters tired of fiscal belt-tightening measures already implemented and investor pressure to unveil further spending cuts. Ratings agency S&P said it revised its outlook on Argentina to negative from stable due to risks that the government may not be able to implement its economic plan.

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Many Argentines blame the IMF for budget cuts that plunged millions into poverty during the 2001-02 economic crisis.

The peso strengthened 6.08 percent on Friday to close at 37 to the dollar after the central bank said it would auction $675 million in foreign reserves. On balance the currency lost 25.89 percent against the greenback in August and 49.59 percent so far this year.

It lost 20 percent on Wednesday and Thursday alone after Macri said he would ask the IMF to advance disbursements under a $50 billion financing deal. The announcement raised alarms among investors that Argentina might be hard pressed to fund its 2019 deficit.

“Argentina has the full support of the Fund and we are confident that the strong commitment and determination of the Argentine authorities will help the country overcome the current difficulties,” IMF spokesman Gerry Rice said in a statement.

In its statement, S&P said it maintained its credit rating for Argentina at B+ – several notches below investment grade – because Macri’s commitment to austerity measures should help sustain investor confidence. But it said the recent depreciation in the peso threatened to keep inflation high.

The government is expected to announce a policy package containing further spending cuts. But more belt tightening will meet strong opposition, as discontent with Macri grows over high inflation, a weak economy and subsidy cuts that have jacked up household heating and water bills.

With more austerity on the way, and utility prices set to rise again in the fourth quarter, low and middle income Argentines are hard-pressed to pay household costs. Yet the IMF and investors want more fiscal tightening.

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