The International Monetary Fund warned that if the Argentine recession deteriorates, it will affect the economy of neighboring countries that hold strong commercial ties.
The financial body, which recently granted a $57.1 billion credit line to the Latin American country, currently expects the Argentine economy to decline 2.60% in 2018 as it tries to stabilize a months-long currency crisis and implement austerity measures required to bring fiscal deficit back to fiscal equilibrium next year.
"We are confident that measures proposed in the budget law will be enough to meet equilibrium" Nigel Chalk, supervisor of Argentina for the monetary fund, reportedly said in a conference held by World Bank and IMF in Indonesia.
Still, "a recession greater than expected in Argentina could have significant contagion effects for neighboring countries with strong commercial exposure." the IMF said in its Economic Outlook report for Latin America.
The IMF expects Argentina to grow 1.60% in 2019, during which the country will hold presidential elections; while official government figures in the budget law are less optimistic, expecting just 0.50% growth.
As for the broader region, tighter global conditions are weighing on emerging markets, with estimates by the IMF for Latin America and the Caribbean economies at 1.20% growth in 2018 and 2.20% in 2019.
In that regard, IMF head Christine Lagarde encouraged economic policymakers in emerging markets to "use all the tools" at their disposal to contain expected capital outflows, El Financiero reported.
"It's not just clouds on the horizon that we see, but some of the clouds have started opening up, and it's a bit more than a drizzle," she reportedly said. The IMF is preparing itself to see whether more emerging market countries will require loans as financial turmoil increases.
Pakistan recently submitted a loan request on Oct. 11 for a reported $7 billion, which the IMF is considering.