By Hugh Bronstein
BUENOS AIRES (Reuters) - Opposition politicians and many ordinary Argentines have been quick to criticize President Mauricio Macri's decision to seek a lifeline from the International Monetary Fund but the gamble could pay off if he is able to avoid onerous terms.
Macri and IMF Managing Director Christine Lagarde announced on Tuesday they were opening talks for a financing deal after Argentina's peso currency touched a new low of 23.5 to the dollar, despite tighter fiscal measures and hiking interest rates up to 40 percent in Latin America's third-largest economy.
On Wednesday, the Treasury Ministry announced it would seek a stand-by deal' from the IMF, a type of financing that would likely require more conditions and orthodox policy reforms than a Flexible Credit Line (FCL), such as the more stable economies of Mexico and Colombia have.
For many, the announcement brought back memories of a 2001-2002 financial crisis that many blamed on IMF policy prescriptions adopted by the government. The crisis was punctuated by a debt default and currency devaluation that tossed millions of middle-class Argentines into poverty.
Opposition politicians, particularly those allied with leftist former President Cristina Fernandez, were quick to denounce the deal, placing "IMF OUT!" signs on their desks in Congress.
"Every time Argentina turns to the International Monetary Fund it has been followed by very bad news for Argentina," Agustin Rossi, head of Fernandez's party in the lower house, said on Wednesday.
In a sign Macri's government was pressing ahead with its agenda despite the crisis, the Congress passed a long-awaited capital markets reform law quicker than expected on Wednesday.
But the lower house of Congress was also expected to pass an opposition bid to limit price increases by utilities, following a reduction in government subsidies to help reduce the budget deficit. The government has said it would veto the bill, which has contributed to market jitters, if it passes both houses.
The Merval stock index closed up 6.5 percent after the capital markets bill passed. It had lost 12 percent in the previous five trading sessions.
"If, by resorting to the IMF, the government manages to stabilize the situation, then the political cost of having this unexpected guest back again may be short-lived," said Ignacio Labaqui, who analyses Argentina for risk consultancy Medley Global Advisors.
If the IMF lifeline continues to calm markets and does not dramatically change Macri's agenda, his gamble on seeking assistance could bear dividends. He will have re-established ties to the Fund in time for the political fallout to settle before his expected 2019 re-election campaign.
But if it fails to restore confidence or requires draconian austerity measures, Macri's appeal to the IMF could jeopardize his ability to win a second term.
"The government is aware of the costs. It is a step they would have preferred not to take. They are running the risk of deepening the decline in popularity," said Juan Cruz Diaz, managing director of Cefeidas Group, a political risk consultancy in Buenos Aires.
"But this is the moment to make these difficult decisions."
Macri was driven back to the IMF by a perfect storm including a free-falling peso and an economy hobbled by one of the world's highest inflation rates, running at around 25 percent.
The peso closed 0.53 percent weaker on Wednesday following several days of turmoil that prompted the central bank to increase interest rates on Friday and the government to cut its fiscal deficit target to 2.7 percent of gross domestic product.
Market nerves were strained by a new tax the government slapped on foreign investors last month. Investors had already been shying away from emerging markets generally, ahead of expected further tightening by the U.S. Federal Reserve, which hit currencies across Latin America.
On the streets of Buenos Aires, many Argentines were apprehensive the IMF could once again impose a straitjacket on their country, after the spectacular failure of its policies 17 years earlier.
According to a survey taken by polling firm D'Alessio IROL/Berensztein last weekend, 75 percent of respondents said they would not support a government request for assistance from the IMF. That included 58 percent of those who voted for Macri's 'Let's Change' coalition in the 2015 elections.
Thousands of union members and supporters of Fernandez and other opposition parties rallied outside Congress on Wednesday evening in protest of Macri's business-friendly policy reforms, and the IMF's re-involvement in Argentina.
"I feel my salary is devalued more and more. On the macro level, these measures seem to me like holding down a person who is already drowning," said Juan Manuel Gavilan, a state employee.
(Reporting by Hugh Bronstein; Additional reporting by Jorge Otaola, Luc Cohen, Juan Bustamante and Christian Plumb; Editing by Andrea Ricci and Grant McCool)