Argentina’s announcement that it plans to sell US$7.5 billion in the foreign exchange market to help stabilize the peso and support its budget failed to prevent the currency from falling to a record low on Wednesday.
The peso initially rose after the Argentine Ministry of Finance said the central bank would conduct daily auctions on behalf of the Treasury to sell the dollars.
However, gains were short-lived as analysts said the measure was unlikely to provide enough support for Argentina’s economy in the face of high inflation, a widening budget deficit and higher global borrowing costs.
“The gap between inflows and the current account deficit is still huge, but the sense is that inflows aren’t guaranteed this year. We need either foreign investors to return, or the current account deficit to drop,” said Ezequiel Zambaglione, head of research at Buenos Aires broker Max Valores.
Earlier, the ministry said it would use the funds to support budget expenditures once it gets access to a credit line from the IMF.
Argentina requested 30 percent of a the US$50 billion credit line to be disbursed upon approval and half of that be made available for budget support, the IMF said in a separate statement.
The IMF’s executive board is scheduled to vote on the credit line on Wednesday next week.
Argentina’s economic plan “creates a solid basis for the US$50 billion standby arrangement,” IMF managing director Christine Lagarde said in a statement. “The plan will also help reinforce Argentina’s institutional framework. For example, it has measures to improve the medium-term budget process and to ensure central bank independence.”
The peso fell 2 percent on Wednesday to end the session at 26.26 per US dollar, a record low. It is down 29 percent this year, the worst performer in emerging markets.
Argentine bonds also fell, with the yield on the government’s bond due in 2117 surging 7 basis points to a record 8.6 percent after the US Federal Reserve raised rates for the second time this year.
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