Argentina’s currency crisis finally seemed to be calming down in midweek after three frantic weeks. Even President Mauricio Macri’s drastic step of turning to the International Monetary Fund (IMF) on May 8 – seen as a last resort after the Argentine peso had become the most devalued currency in the world in the previous fortnight, despite the sale of Central Bank reserves exceeding US$ one billion on some days as well as raising interest rates to 40 percent – failed to banish turbulence in the rest of that week.

But Macri’s government reclaimed the initiative early this week with two successful strategies. On Monday the Central Bank faced down a three-week run on the currency by calling the market’s bluff and offering US$ five billion (almost 10% of its remaining reserves) at 25 pesos – the dollar, which had started the week topping 25.50 pesos, fell below 24 pesos in the next two days.

But the real battle came on Tuesday with 617 (originally  670) billion pesos worth of short-term Lebac Central Bank bonds up for renewal – would there be a massive exodus to the dollar? But the Central Bank had prepared the ground well by repurchasing around half these Lebacs in advance on secondary markets and renewal was more than total at 621 billion pesos, including major global investment funds.

Applying for an IMF stand-by loan was a controversial gamble in Argentina, whose bitter experience of this move in previous decades has led to the global monetary watchdog having a negative image among at least 70% of public opinion. But Macri’s economic team argued that IMF interest rates (around 4%) were half of what could be found otherwise on tightening international credit markets.

The size of the package (the government is shooting for at least US$ 30 billion while other expectations are more like US$ 20 billion) and its conditions – likely to include a major devaluation (or at least a genuinely floating currency) and austerity measures – are yet to be determined in

negotiations which could stretch into next month.

Macri’s Tuesday announcement was followed by meetings with provincial governors last Thursday to keep an IMF deal away from a hostile Congress and with top businessmen (including Corporación América’s Eduardo Eurnekian) on Friday while Treasury Minister Nicolás Dujovne was already flying out to Washington on the Wednesday night to begin negotiations (with IMF Managing Director Christine Lagarde then still in Europe). A fortnight previously many of Macri’s economic team had attended the IMF’s spring meeting with no mention of this drastic move.

Former Treasury Secretary Guillermo Nielsen criticised going to the IMF as an improvised overreaction, more typical of economies on the brink of default and unprecedented for a nation with Central Bank reserves well above US$ 50 billion and a country risk of around 450 points. But many economists said that turning to the IMF was inevitable after massive Central Bank dollar sales and 40% interest rates failed to stop the dollar while there was evidence that the apparently abrupt decisión had been taken at least five days previously

Almost all economists identified the fiscal deficit as the root of the problem – this year’s target for reducing the primary deficit is 2.7% of GDP (lowered from 3.2% as a result of the crisis) but servicing the debt doubles that figure in the final total.

A battle was won on Tuesday to calm the storm, but not the war.

(This article based on the May 12 edition of the Buenos Aires Times, which devoted eight pages to the crisis, with information updated to mid-month).