(Adds peso close, comment from Caputo on proposal for emerging market bonds)
By Jorge Otaola and Luc Cohen
BUENOS AIRES, Sept 7 (Reuters) - Argentina’s central bank chief said on Friday government financing for 2019 “will be more than sufficient” and that the recent sharp depreciation of the country’s peso currency will “correct itself quicker than markets believe.”
But Luis Caputo, speaking at a conference of finance executives, lamented that Argentina lacked the tools for containing market volatility available in developed nations, and said their central banks should invest in some emerging market bonds.
The peso gained 1.27 percent to 36.98 per dollar on Friday, closing virtually stable for the week.
In the past three days, the currency appreciated 5.5 percent as Argentine officials held talks with the International Monetary Fund in Washington. The government hopes the talks will result in accelerated disbursements under a $50 billion standby loan agreement reached in June, to ease concerns about its ability to pay its international debts.
Last week the peso plunged 16 percent after President Mauricio Macri announced that Argentina would seek early disbursements under the IMF deal, bringing the currency’s losses to about 50 percent this year.
“There is no doubt that there is an over-exaggeration. This is going to correct itself quicker than markets believe,” Caputo said. “Financing will be more than sufficient for 2019,” he added, without offering details about the sources of financing.
The IMF said on Thursday it aimed to wrap up talks to “strengthen” its arrangement with Argentina as soon as possible. Argentina’s economy minister has said an agreement could be put to the IMF’s board for approval this month.
Caputo said he thinks central banks in developed nations might be interested in investing part of their reserves in bonds from emerging markets like Argentina.
“Central banks in developed countries could diversify a small portion of their reserves, (put) 2 percent in bonds of emerging countries that have IMF programs,” Caputo said, adding that he plans to float the idea at a gathering of central bank governors in Switzerland this weekend. “Why not?”
On the eve of this week’s IMF talks, Macri announced austerity measures, including spending cuts and taxes on exports, to balance the budget next year, a year earlier than previously planned.
That comes as a risk to Macri in a country where many blame IMF-imposed austerity for exacerbating a 2001-02 economic crisis that plunged millions into poverty. Analysts expect the economy to contract 1.9 percent this year, with inflation topping 40 percent.
Last month, the central bank hiked its interest rate to 60 percent to try to halt the run on the peso and calm inflation, a move that could hurt economic activity. High rates are a factor behind what construction executives expect to be massive layoffs in the coming months.
Caputo described the current interest rate as a “crisis rate” and said it was “not viable” in the medium or long term.
Argentina’s over-the-counter bonds rose 0.2 percent on average on Friday and country risk - a measure of how much higher Argentine bond yields are compared to less risky alternatives - fell 11 basis points to 718 basis points.
While the swift peso depreciation makes Argentina’s dollar debts harder to pay, most economists say default risk is low.
Economist Mauro Roca said he expected country risk would continue to decline and “the valuation of risks was and is exaggerated.” (Reporting by Jorge Otaola and Luc Cohen, additional Reporting by Scott Squires; editing by Phil Berlowitz and Tom Brown)