The International Monetary Fund's Managing Director Christine Lagarde has welcomed a "strong and ambitious" economic plan from the Argentine government as it formally requested a $50 billion rescue package.
President Mauricio Macri’s government laid out the details of its plan to revitalize the country’s debt-laden economy with a letter of intent and a memorandum of economic policies, including measures to end the government’s supremacy over the central bank.
"It establishes ambitious medium-term fiscal goals for the federal government and establishes realistic inflation targets that will govern the conduct of monetary policy," Lagarde said in a statement. The IMF’s executive board will formally consider the request on June 20.
One of the key terms for the loan was a request that the government introduce measures to reform the government’s links with the Banco Central de la República Argentina. Past presidents have leaned on the central bank to print money to close fiscal holes.
"[The plan] has measures to improve the medium-term budget process and to ensure central bank independence. Importantly, it also discontinues the practice of providing central bank financing of the fiscal deficit, a critical step in the establishment of an independent central bank," Lagarde said.
The peso recovered somewhat on June 13, gaining 1.4% from the start of the day to peak at 25.47 pesos to the dollar before dropping back slightly.
Other measures put forward included commitments to preserve current social spending levels, increased resources for social assistance programs, tackling gender equality in the tax system and provision of childcare support for working families.
"With the clarity provided by the authorities’ letter, I judge that the negotiation with IMF staff have been completed satisfactorily and that this economic plan creates a solid basis for the $50 billion Stand-By Arrangement announced last week," Lagarde said.
The Argentine government requested that one-third of the $50 billion total would be disbursed immediately with $7.5 billion of that allocated to budget support.
On May 4, rating agency Fitch lowered its outlook on the country to stable from positive due to "negative implications for economic prospects and the policymaking environment."
Fitch forecast inflation to grow to 27.5% by year-end 2018 and lowered its GDP growth forecast for 2018 to 1.3% from 2.6% previously.