By Lesley Wroughton and Hugh Bronstein
WASHINGTON/BUENOS AIRES (Reuters) - U.S. President Donald Trump on Tuesday backed Argentine President Mauricio Macri's handling of a worsening economic crisis and encouraged his efforts to quickly win financing from the International Monetary Fund.
Argentina's peso slid further as investors reacted with skepticism to Macri's plans to cut the budget deficit, while an Argentine delegation arrived in Washington for talks with the IMF about accelerating its standby finance deal.
"I have confidence in President Macri's leadership, and I strongly encourage and support his engagement with the International Monetary Fund to strengthen Argentina's monetary and fiscal policies to tackle the country's current economic challenges," Trump said in a statement outlining a call he held earlier with Macri.
Argentina is struggling to break free from cyclical financial crises that have bludgeoned the country every decade over the last 60 years. The most recent, in 2002, tossed millions of middle-class Argentines into poverty and shook investor confidence in the commodities-reliant economy.
The Argentine central bank auctioned $100 million in reserves on Tuesday to help prop up the peso, which nevertheless fell 3 percent to 39.2 to the U.S. dollar. Last week alone, the currency lost 16 percent of its value.
Trump said the United States supports Argentina "during this trying time."
Argentina's Merval stock index was down almost 3 percent on Tuesday with traders citing doubts about the government's ability to make good on new fiscal plans as Latin America's third-largest economy slides into recession this year.
On Monday, center-rightist Macri announced new taxes on exports and steep spending cuts to eliminate Argentina's primary fiscal deficit next year. In exchange, Macri is asking for early cash disbursements from the $50 billion standby deal he negotiated with the Fund earlier this year.
The new measures were meant to assure investors that Argentina can pay its debts but financial markets remained wary of the government's ability to push reforms through a restive Congress amid growing frustration on the streets of Buenos Aires.
"It's hard for the market to believe that a country like Argentina can hit its new fiscal targets over the short term," said Sebastian Cisa, with Buenos Aires-based brokerage SBS.
Argentina's current IMF deal includes fiscal targets that Argentina says it wants to strengthen as part of its effort to gain the market's trust. Those new fiscal goals are what is being negotiated in Washington this week.
IMF officials in Washington, who asked not to be identified, said they expected talks with the Argentine delegation to last a few days.
New terms would have to be approved by the IMF's board of directors, which can be convened at any time. The Fund has generally voiced support for Macri and his orthodox economic policies.
Economy Minister Nicolas Dujovne has said early cash disbursements from the IMF would allow the government to avoid going to the bond market for financing over the near term. The IMF deal was negotiated earlier this year as pressure mounted on the peso.
The current IMF deal calls for a primary fiscal deficit of 1.3 percent of gross domestic product next year. The new government proposal is to eliminate the deficit in 2019 while this year's deficit target has been pared down to 2.6 percent of GDP from 2.7 percent.
"The new 2019 primary fiscal target is ambitious and will require unwavering discipline by the authorities, particularly given the backdrop of an aggravating recession and likely increase in poverty," Goldman Sachs analyst Alberto Ramos said in a note to clients.
Faced with higher U.S. interest rates that siphoned off investors from emerging markets, contagion from a currency crisis in Turkey and a drought that wrecked harvesting of Argentina's main cash crop, soy, the deficit left the country open to doubts about its ability to make next year's debt payments.
The peso has lost about half its value against the dollar this year and Macri has struggled to get budget cuts approved.
When he tried cutting pension benefits late last year, protesters had to be driven back from Congress with tear gas and water cannon. "We had very ambitious goals, but the country was not ready for them," Dujovne said told local television on Monday before leaving for Washington.
(Reporting by Hugh Bronstein and Lesley Wroughton; Additional reporting by Tim Ahmann and Daina Beth Solomon in Washington and Mitra Taj in Buenos Aires; Writing by Alistair Bell; Editing by Daniel Flynn and Andrea Ricci)
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