The IMF boosted its credit line to Argentina this week, to $57.1 billion, the largest in its history.
A larger credit line will be delivered at a faster pace, so long as the central bank follows new requirements.
Some economists worry the bailout plan could cause stagnation and political risks.
In an effort to stem a crisis has roiled Latin America’s third-largest economy, the International Monetary Fund this week said it would increase Argentina’s credit line to $57.1 billion. But boosting what was already the largest bailout in its history doesn’t come without risks, experts say.
“While the IMF’s decision to make more credit available to the country over the next three years has reduced sovereign default risks over this period, things could still turn sour beyond that,” Edward Glossop, a Latin America economist at Capital Economics, said. “Argentina has had 22 IMF deals since 1958, and none have restored macroeconomic stability on a sustained basis.”
What are the changes?
A $7.1 billion credit-line increase
Payments will be delivered at a faster pace
A zero-deficit target for 2019
Restrictions on when the central bank can intervene
Disbursements are no longer precautionary (Argentina will receive funding so long as it meets the conditionality of the agreement)
New monetary-policy stipulations would minimize volatility, analysts said, but could pose risks to economic activity. Under the new agreement, Argentina’s central bank would only be allowed to intervene under extreme circumstances. A “non-intervention zone” would be set between 34 and 44 pesos per dollar beginning in October.
“We think the main risk of this policy is to generate additional stagnation in economic activity, particularly well into 2019, when we expect some recovery signs to start showing,” analysts at HSBC said. That could be especially true if inflation, which is expected to surpass 40% this year, remains well above target.
Meanwhile, economists are predicting the country will fall into a recession by the end of 2018 as the government scrambles to reduce its debt. Gross domestic product fell sharply between April and June, marking the first economic contraction in more than a year, and is expected to continue to slide in coming quarters amid steep spending cuts and export tax increases.
A complicated past
Argentina has had a complicated relationship with the IMF, which has been blamed for worsening the country’s economic crisis in 2001. Three years after intervention, which was followed by the largest sovereign default in history, an independent evaluation office within the IMF authored a 193-page report pointing to where it may have gone wrong.
But this plan falls short of requiring a fixed exchange rate, a factor the IMF said played “the central role” in turning Argentina into a crisis country. Trading one-to-one with the dollar, it provided stability for awhile but left policymakers powerless once investor confidence faltered.
Alberto Fernandez, who served as cabinet chief to former President Néstor Kirchner,criticized current President Mauricio Macri on Twitter in May when the IMF announced plans to aid Argentina again. “The only idea that came to Macri is to resort to the lender of last resort,” he wrote. “That is the IMF. What a way to smash an economy.”
‘It’s about the politics’
Fiona Mackie, regional director for Latin America at The Economist Intelligence Unit, said the new deal offers a better plan to address inflation and normalize the economy. But she said political uncertainty could cause turmoil in the country.
“The government should be better able to steer policy through a difficult few months and succeed in its adjustment package,” she said. “All that said, risks abound, and at this point it’s about the politics, and the political capacity to keep the moderate opposition, and voters at large, on side.”
Sticking to IMF targets may prove difficult for Macri, a conservative whose campaign focused on free-market reforms, as the October 2019 presidential election approaches. With an approval rating that his dipped below 40% this year, he could risk losing re-election.
“We expect markets to remain unnerved by the possibility that he may not be re-elected next year – a situation that could put the current macroeconomic adjustment program in jeopardy,” said Nomura analyst Craig Chan.
Meanders at Kiboino village along Iten-Kabarnet road. The road is famous for its tens of corners between Baringo and Elgeyo Marakwet counties.[Denish Ochieng, Standard]
Faults.” By the way, suppose Gregory never happened on the scene, what would you have called this fissure? The vast valley, formed when the core of the earth heaved and sighed millions of years ago as a result of volcanic activity, is visible from space and runs from Lebanon in the Middle East to Mozambique in the southern part of Africa. Yet, it is the immense natural beauty and diverse cultures that make a visit to this region worthwhile. Late last year, during the small window that allowed for some travel, I hooked up with Ben, a birding expert for an exploratory tour of the Rift Valley. Now Ben is one man who can tell one bird from another even in his sleep. He will spend copious amounts of time combing every bush for that rare bird few can identify. The adventure starts at the eastern escarpment that drops towards Mai Mahiu. The unwritten rule is to stop and take in the enchanting vistas that stretch beyond the valley floor as far as the eye can see because the most beautiful things in life are free. From here, the conical Mount Longonot looms large, another product of the volcanic activity that created a caldera when part of the volcano collapsed. Since our aim was to make it to Baringo by early afternoon, a quick glimpse of the expanse was enough. We got to Nakuru by midday. The sweltering heat was becoming unbearable, a sharp contrast to the cloudy weather back in Nairobi. “If you think Nakuru is hot, wait till you get to Baringo,” warned a security guard at a mall in Nakuru.
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True to his words, the terrain became harsh past Kabarak. Trees, bereft of leaves dotted the countryside. Lake Bogoria Spa was our next pit stop. In the harsh terrain, the hotel stands out like a diamond in the rough. On a good day, guests are entertained by Tugen dancers just before dinner. It was in this hotel that I got to taste mursik for the first time. I say on a good day because there was little activity at the hotel as the effects of Covid-19 wore on. The hotel is named after the nearby Lake Bogoria, one of the four Rift Valley lakes to the north.
Flamingos at Lake Bogoria National Reserve in Baringo county on January 20, 2021.[Kipsang Joseph, Standard]
Bogoria also marks the divide between the northern lakes of Baringo, Turkana and the ‘Masai’ lakes of Nakuru, Elementaita and Magadi. Lake Bogoria is set at the bottom of the 600-metre Ngendelel Escarpment. Bogoria could not have been set in a more bleak environment. It lacks an outlet, but the high alkalinity in the lake has been a factor in the propagation of the blue-green algae that is at the core of the lake’s global fame. Still, the stench from the algae is enough to make you puke. How, you may wonder, would such seemingly useless substance bring visitors from around the world? You see, Bogoria is known for harbouring thousands of flamingos. Though they do feed on some small fish, the algae is not only their main source of food but their vibrant pink colour as well. The algae contains beta-carotene, a water-based bacteria with a reddish-orange pigment. When the bacteria dissolves in the birds’ fat, it is then deposited in feathers and as the birds grow, their colour slowly shifts to pink. Got it? Thus, a well-fed flamingo will have a deeper shade of pink and will make a formidable mate while a pale one could as well be content in the singles club. In the flamingo world, you are what you eat! Sadly, his beautiful phenomenon is slowly fading away, thanks to the current phenomenon of rising Rift Valley lakes. For the last 10 years, the water in Lake Bogoria has risen to unprecedented levels, diluting the alkalinity and making it difficult for the flamingoes to survive. A similar phenomenon greeted us in Baringo. At Kampi ya Samaki, scores of men washed their motorcycles on the road, now part of the lake.
Some of the buildings submerged at Soi Safari Lodge after Lake Baringo swelled on July 21, 2020.[Kipsang Joseph, Standard]
We had anticipated to lodge at the nearby Soi Safari Lodge, but this one too has been eaten up by the lake. And so are Robert’s Camp and Lake Baringo Country Club, the region’s favourite safari destinations. We were content staying in a nondescript haven on the water’s edge. For some sense of serenity, we took the vertical ascent towards Kabarnet, the town set on a hill, one side overlooking the Iten escarpment. Kabarnet sits on top of Kerio Valley, undoubtedly one of the most scenic locations in Kenya. Three minutes from Kabarnet, we pull over to the side of the road to take in the endless beauty of the valley below, where, as my primary school teacher told me, is the source of fluorspar. If the landscape does not stir any emotions on your part, the Kabarnet-Iten Road surely does. On such terrain, constructing a road vertically presented many challenges. In order to minimise the gradient, the engineers simply made numerous twists and turns, coils upon coils of tarmac meandering all the way to the top. While this was not their intention, the winding road has become part of the region’s tourist attraction. My two days in the geological museum that John Gregory called the Rift Valley revealed some secrets that make the region tick. Here, the remains of animals and plants lie fossilised, awaiting a new discovery.
Office of Attorney General Paul Kihara, through Solicitor General Kennedy Ogeto, has filed a notice of Appeal. [File, Standard]
The office of the Attorney General intends to appeal the decision by a five-judge bench that ruled against the Building Bridges Initiative (BBI) process. The bench had on Thursday, May 13, ruled that the BBI process was unconstitutional, null and void. In a document dated May 14, Solicitor General Kennedy Ogeto said that the office was dissatisfied with the court’s judgement and that it would appeal the court’s decision. In the document, the government’s legal office said that it will move to the appellate court because the matter was of immense public interest. “Unless this Application for stay of execution of the order is heard urgently, there is a real risk,” the document read in part. The five judges on the bench were Joel Ngugi, George Odunga, Jairus Ngaah, Chacha Mwita and Teresia Matheka pronounced 17 issues on the BBI ruling. The major issue raised was the President’s role in initiating change through a popular initiative. Jointly, the judges ruled that constitutionally, President Uhuru Kenyatta cannot use popular initiative to vouch for constitutional changes.
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In the ruling, the bench said that the process did not go through public participation as is required by the law. They recommended that Kenyans are provided with printed copies for a clear comprehension of the document. Additionally, the five legal minds also pronounced the 14-member BBI task force mandated to review areas to be amended in the constitution as illegally constituted More to follow
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