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Argentine Markets Sink Anew on Fernandez’s Harsh IMF Statement

Ignacio Olivera Doll and Carolina Millan

(Bloomberg) -- Argentina bond spreads widened to the most in 14 years after opposition leader Alberto Fernandez ripped the debt-laden country’s accord with the International Monetary Fund.

The spread over Treasuries widened 182 basis points to 2,003 basis points, the most since June 2005, after Fernandez said much of the IMF loan had been wasted on financing capital flight out of the country. The peso fell 1.8%, while stocks extended three days of losses.

The decline in the peso could have been worse if the central bank hadn’t carried out its biggest intervention in the spot market since Guido Sandleris took over at the bank in September, 2018. Policy makers sold $302 million into the market through seven auctions, according to people with knowledge of the matter.

A technical team from the IMF is in Buenos Aires to decide whether to give out the next disbursement of a $56 billion loan deal. In a statement following a meeting with IMF officials, Fernandez said he agreed with the objectives of the IMF deal, but added that the IMF and the current government generated the current crisis and are now responsible for reversing the “social catastrophe.”

“Alberto Fernandez’s statements after the IMF meeting created noise,” said Joaquin Gonzalez Gale, FX trader at INTL FCStone in Buenos Aires. “Today, anything he says is blown out of proportion.“

If the IMF decides to give the next disbursement, that would reassure the market and lead the interest rate on short-term dollar notes known as Letes to drop sharply, Gonzalez Gale said. Until then, traders worry about what the contingency plan might be.

“The problem is now banks are wondering what will happen if the Treasury doesn’t receive these dollars” from the IMF, he said.

The government is selling 35-day and 140-day Letes today, as well as 35-day peso-denominated Lecaps on Aug. 28.

(Updates with details of intervention in third paragraph.)

To contact the reporters on this story: Ignacio Olivera Doll in Buenos Aires at ioliveradoll@bloomberg.net;Carolina Millan in Buenos Aires at cmillanronch@bloomberg.net

To contact the editors responsible for this story: Julia Leite at jleite3@bloomberg.net, Philip Sanders

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