Argentina adds CAF, IDB to wish list amid peso slide

Argentina adds CAF, IDB to wish list amid peso slide

Corporate & Sovereign Strategy Economy & Policy Debt Argentina

Argentina has reached out to the IDB and CAF for additional lines of credit this week after already engaging with the IMF over a standby lending arrangement (SBA).

Rising US Treasury yields and a stronger dollar has triggered concerns that the US Federal Reserve could raise rates more aggressively than expected, which has pressured emerging market currencies.

And Argentina's peso has been hardest hit, prompting talks of credit lines to stem a currency that slid almost 4% on Friday to roughly ARS23.6 per dollar.

Alberto Ramos of Goldman Sachs said on Friday the traditional IMF lending facility was a positive development that underscored President Mauricio Macri's macroeconomic strategy.

A high-access SBA can last between one and three years and has no cap in terms of access to funding. And Ramos said this could allow the sovereign to meet its external funding needs over a longer period of time without the need of tapping international capital markets.

"Negotiating an IMF program was the right policy move from a macro-financial standpoint," Ramos said. "It will likely allow authorities to continue down a path of gradual fiscal adjustment without being exposed to shocks to its market's external funding conditions."

Edward Glossop, Latin America economist for Capital Economics, said in a report on Friday that Argentina's talks with the IMF masked that its economy was likely "to fall into recession this year." The economics consultancy firm had lowered GDP to contract 0.5% this year versus growth of 2.5% previously and also revised 2019 growth to 1.5% from 3.2%.

"These forecasts are well below the consensus, but the risks lie to the downside," Glossop said in the report. "Deal or no deal, the economy looks set for an abrupt slowdown."

The firm also suggested that Argentina's spending cuts would weigh on demand. The government last week said it would cut spending by 1.8% of GDP in 2018, but the budget deficit is equal to 7% of GDP, and Glossop reckoned the IMF would insist on more austere policies.

Argentina has more than $110bn in bond, loan and interest payments over the next 10 years, according to data compiled by Bloomberg.

The sovereign's 5.875% 2028s widened out to 7.8% earlier this week after Argentina issued the paper at 6% yield in January.

Earlier in the week, markets misunderstood Argentina's IMF request for a flexible credit line (FCL).