BUENOS AIRES (Reuters) – Argentina could revise the fiscal targets set as part of a $50 billion financing arrangement with the International Monetary Fund to increase spending on social programs, an IMF director said on Friday, as the country’s stocks rallied on the deal.
Argentina requested IMF assistance on May 8 after a run on its peso currency in an investor exodus from emerging markets. The deal marks a turning point for the South American country, where many blame IMF austerity measures for plunging millions into poverty in a 2001-2002 economic crisis.
Opposition politicians aligned with former populist President Cristina Fernandez said market-friendly President Mauricio Macri was repeating the mistakes of the past. But the IMF and the government said spending on programs to help the poor would be protected under the deal, and could increase.
“The fiscal targets can be revised in case there is a need to increase social spending,” IMF Western Hemisphere Director Alejandro Werner. “That way, society does not have to choose between building a bridge or protecting the poorest.”
As part of the deal announced Thursday night, the government agreed to speed up reductions in the primary fiscal deficit to balance the budget by 2020. The government also pledged to propose legislation for a more independent central bank to fight double-digit inflation, which Werner praised on Friday.
The benchmark Merval stock index .MERV rose 3.8 percent on the deal. Bonds opened higher but later pared gains, with Argentina’s country risk 11EMJ – a J.P. Morgan measure of the difference between the country’s bond yields and less risky alternatives – down one point at 480 as of 1:27 p.m. local time (1627 GMT).
The South American country’s 100-year bond maturing in 2117 AR163761602= was down 0.2 percent at 86.6 cents on the dollar after rising earlier.
“Argentina is now armored and has gained a degree of freedom from dependence on financial markets,” Gabriel Gersztein, head of Latin America Strategy at BNP Paribas. “Nevertheless, the conditions will not be easy to comply with.”
The peso ARS=RASL touched a record-low 25.66 per U.S. dollar after the central bank stopped a weeks-long defense of the currency. It later rebounded to trade down 1.8 percent at 25.45.
For the past few weeks, the central bank has offered to sell $5 billion in reserves at 25 pesos per dollar every day, effectively preventing the currency from falling below that level. That offer did not appear on Friday, traders said.
Additional reporting by Maximiliano Rizzi in Buenos Aires, Rodrigo Campos in New York and Jason Lange in Washington; Editing by Bill Trott and Nick Zieminski