Argentina peso rises as IMF sees progress and Macri submits budget bill
By Hugh Bronstein and Eliana Raszewski BUENOS AIRES (Reuters) - Argentina's battered peso currency inched higher and the risk of its bonds defaulting declined on Monday after the government unveiled its budget plan and the IMF said 'important progress' had been made on revamping the country's standby loan agreement. The peso rose 0.76 percent to close at 39.57 to the U.S. dollar and country risk tightened by 10 basis points after the government released its 2019 budget proposal, which pledges to erase the primary fiscal deficit next year
By Hugh Bronstein and Eliana Raszewski
BUENOS AIRES (Reuters) - Argentina's battered peso currency inched higher and the risk of its bonds defaulting declined on Monday after the government unveiled its budget plan and the IMF said "important progress" had been made on revamping the country's standby loan agreement.
The currency has lost over 6 percent of its value against the dollar this month and more than half its value so far this year, as confidence collapsed in Argentina's ability to make its 2019 debt payments. But market sentiment has improved in recent days.
President Mauricio Macri's budget bill aims to use increased taxes on exports as well as spending cuts to bring about fiscal equilibrium, a formula that some analysts say could get the country through next year without major disruptions.
Cuts have already sparked protests and relying on them alone would likely heap political pressure on Macri as he heads into his October 2019 re-election campaign. [nL2N1VS1BG]
The business community is expected to reluctantly accept the export tax hikes as the price of keeping Macri, a free-market advocate, in power.
The JPMorgan Emerging Markets Bond Index Plus (EMBI+), which measures the perceived likelihood of default against safe-haven U.S. Treasury bonds, pegged Argentina at a spread of 651 basis points on Monday, 5 points tighter than on Friday, and more than 120 tighter than 773 at the start of the month.
The country's central bank said on Monday that, based on preliminary estimates, its international reserves are at $49.6 billion dollars, down from $63.9 billion last January, but far from the all-time low of $9 billion the country saw in August 2002.
The budget bill projects an average exchange rate of 40.1 pesos to the dollar in 2019 and forecasts an economic contraction of 2.4 percent this year and 0.5 percent in 2019.
The budget goals are being worked out with the International Monetary Fund, which is revamping Argentina's standby financing deal. [nL2N1W01IH]
In June, Argentina signed a $50 billion standby deal with the IMF that projected a 2019 primary fiscal shortfall of 1.3 percent of GDP. The deal was not enough to halt the run on the peso, which slid 26 percent in August alone, forcing Macri to re-negotiate stricter fiscal targets with the Fund.
"Important progress is being made toward strengthening Argentina's economic policy plan, supported by a stand-by arrangement with the IMF. We are working hard to conclude these staff-level talks in short order and present a proposal to the IMF executive board," the IMF said in a statement.
Achieving a zero deficit will not come from spending cuts alone. A big component would be tax increases on exports, economist Gustavo Ber said.
"This can be advantageous from the point of view of generating a financial calm that is the tip of generating a greater expectation of economic recovery, which is where social pressures come from," Ber said.
Fiscal belt-tightening items included in the budget bill will not be easy for Macri to implement ahead of his expected re-election bid, with inflation also pressuring wages. The government expects consumer prices to rise by 42 percent this year and 23 percent in 2019.
(Reporting by Eliana Raszewski, Scott Squires and Hugh Bronstein; Editing by Alistair Bell and Rosalba O'Brien)
This story has not been edited by Firstpost staff and is generated by auto-feed.
By Robin Emmott and John Irish | BRUSSELS/PARIS BRUSSELS/PARIS France and Germany will agree to a U.S. plan for NATO to take a bigger role in the fight against Islamic militants at a meeting with President Donald Trump on Thursday, but insist the move is purely symbolic, four senior European diplomats said.The decision to allow the North Atlantic Treaty Organization to join the coalition against Islamic State in Syria and Iraq follows weeks of pressure on the two allies, who are wary of NATO confronting Russia in Syria and of alienating Arab countries who see NATO as pushing a pro-Western agenda."NATO as an institution will join the coalition," said one senior diplomat involved in the discussions. "The question is whether this just a symbolic gesture to the United States
BEIJING Chinese President Xi Jinping on Wednesday called for greater efforts to make the country's navy a world class one, strong in operations on, below and above the surface, as it steps up its ability to project power far from its shores.China's navy has taken an increasingly prominent role in recent months, with a rising star admiral taking command, its first aircraft carrier sailing around self-ruled Taiwan and a new aircraft carrier launched last month.With President Donald Trump promising a US shipbuilding spree and unnerving Beijing with his unpredictable approach on hot button issues including Taiwan and the South and East China Seas, China is pushing to narrow the gap with the U.S. Navy.Inspecting navy headquarters, Xi said the navy should "aim for the top ranks in the world", the Defence Ministry said in a statement about his visit."Building a strong and modern navy is an important mark of a top ranking global military," the ministry paraphrased Xi as saying.