Argentina faces yet another economic crisis, this time aggravated by the impact of the COVID-19 pandemic coupled with erratic political decisions as it faces the repayment of a record USD 57 billion International Monetary Fund (“IMF”) bailout agreed by the previous President, Mauricio Macri, in 2018. The deadline for the next payment is March 2022, when the government will need to repay USD 2.8 billion.
An international financing consultant commented, “Argentina have been making smaller repayments, USD 400 million in interest was repaid recently, but everyone can see that the IMF repayment due in 2022 cannot be repaid, and also that the expected date for full repayment is impossible to fulfil.”
“Everyone can see that the IMF repayment due in 2022 cannot be repaid, and also, that the expected date for full repayment is impossible to fulfil.”
International financing consultant, New York
Despite some posturing, the Argentinian government and the IMF have engaged in negotiations to reschedule payments which would grant Argentina additional funds in the short-term. “Argentina has been asking for a longer term than the traditional 10 years,” explained an Argentinian economist, “and that surcharges on the interest payments are removed. The IMF is restricted though and can’t agree to these demands, Kristalina Georgieva (IMF’s Chair and Managing Director) has her power within the IMF severely curtailed and there is little that can influence her supposedly good relationship with Martín Guzman or the steps taken by Pope Francis at the time. The IMF is demanding an economic plan to see how fiscal balance is achieved, but the truth is that Argentina doesn’t have a plan.”
Argentina is the largest IMF debtor with USD 45 billion in payments due, USD 19 billion of which need to be settled in 2022, if both parties fail to reach an agreement.
“The structural problem behind all of this is that Argentina spends more money than it collects.”
The mid-term elections that took place last Sunday have prompted President Alberto Fernández to take a hard-line stance on the negotiations to avoid being seen as weak with the IMF, an unpopular institution for Argentinean voters. Alejandro Werner, former head of the IMF’s Western Hemisphere department bluntly affirmed that Argentina is not going to repay and any agreement will be a temporary remedy.
A political analyst felt that Argentina would ultimately have to yield, “They have no option, there is no other source of financing. Private investment will be extremely expensive and they will demand the same thing as the IMF … an economic plan. Chinese financing is another option often talked about but they only want to finance strategic assets, I don’t see them refinancing an IMF loan. Argentina needs to become less ideological and more pragmatic.”
The US will obviously play a very relevant role in these negotiations, as it did with Mauricio Macri, so all eyes are on David Lipton, Treasury Secretary to Janet Yellen and former Acting Managing Director of the IMF. The political analyst continued, “We could see a shift in Argentina’s foreign policy as a result of the negotiations.”
“The structural problem behind all of this,” explained an Argentinian economist, “is that Argentina spends more money than it collects. Macri had some success in reducing this deficit but the voters felt he was trying to reduce spending too much and rejected him. This happens over and over again; Argentina is stuck.”