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Argentina to sell up to $7.5 billion from IMF in FX market

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People walk past a building decorated with the Argentinian national flag in the financial district of Buenos Aires on June 08, 2018. -- AFP

Argentina plans to sell as much as $7.5 billion in the foreign exchange market to support budget expenditures once it gets access to a credit line from the International Monetary Fund.

The central bank will conduct daily auctions on behalf of the Treasury to sell the dollars, the Finance Ministry said in a statement Wednesday. Separately, the IMF said its executive board will vote on the credit line June 20. It also noted that Argentina requested 30 percent of the credit line be disbursed upon approval and half of that be made available for budget support.

Argentina’s economic plan “creates a solid basis for the $50 billion stand-by arrangement,” IMF Managing Director Christine Lagarde said in the 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 strengthened 0.4 percent in early trading Wednesday before erasing gains to drop nearly 2 percent to 26.26 per dollar, a record low. It is down 29 percent this year, the worst performer in emerging markets. Argentina’s central bank held its key rate at 40 percent Tuesday and indicated it would stay high until inflation starts to cool.

Some analysts saw the government’s announcement as an attempt to quell peso volatility while some economists saw it strictly as a way to cover Argentina’s current account deficit, which could in turn have a positive impact on the peso.

Traders by and large welcomed the government mapping out how it will deploy the credit line.

“It seems healthy to me that the government intends to give certainty about what it’s going to do with the disbursement from the IMF,” says Santiago Herrera, a currency trader at BLD Trading, a foreign exchange firm. — Bloomberg