Should you buy the Argentine peso as Argentina reaches a last-minute deal with the IMF

One of the most brutal currency debasements in the world occurred in recent years in Argentina. The Argentine peso (ARS) has already lost over 38% against the US dollar YTD.

Moreover, it is down 55.05% in the last twelve months and 90.97% in the last five years only. It was a one-way street for the local currency, as the dollar surged and surged without a meaningful retracement in sight.

However, reports over the weekend signal that Argentina has reached a deal with the International Monetary Fund (IMF) to disburse $7.4 billion – much-needed money ahead of the October elections. The markets have expected the deal, and Invezz talked about it a week ago here. But it is one to expect something and another to see it happening.

Hence, the markets may react to the deal being reached, and the ARS may gain some of the lost ground against the US dollar.

Details of the Argentina-IMF deal reached last Friday

The two parties have reached a deal for the IMF to disburse an additional $7.5 billion of its loan program. While the news is definitely a positive one for Argentina, those hoping for the ARS to bounce back should take it with a grain of salt.

Three details of this deal call for caution.

First, $4 billion of the funds part of this deal is part of a June review, delayed so far by the Argentinian government.

Second, Argentina wanted $10.6 billion to be disbursed – to bring forward all remaining disbursements for the year. IMF rejected the idea, probably because it knows that it is most likely to discuss with a new government in a few months, given the October elections.

Third, most of the money will be used to repay the IMF itself.

In other words, while good news for Argentina, the deal should not derail the ARS weakening trend much.

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