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ECONOMY | 17-02-2020 08:36

IMF cannot offer Argentina a haircut on loan, Georgieva says

IMF chief rules out a haircut, but says her organisation backs Alberto Fernández administration's bid to return country to growth.

The International Monetary Fund, as the lender of last resort, will not offer Argentina a haircut of its US$44-billion loan, says Managing Director Kristalina Georgieva.

The IMF chief was responding to recent comments last week from Vice-President Cristina Fernández de Kirchner, who urged the institution to take a loss on its record deal with Buenos Aires.

“Our legal construct is such that we cannot do measures that may be possible for others without this big global responsibility,” Managing Director Kristalina Georgieva said Sunday in a Bloomberg Television interview in Dubai.

An IMF technical mission is currently in Buenos Aires until February 19 for a host of meetings with officials as debt restructuring begins in earnest. The talks are crucial to Argentina's economic future, with the nation needing to restructure debt with other creditors in order to avoid default.

“We do understand the necessity to look at the debt burden carefully. It is the job of the Government, not the IMF,” Georgieva said when asked about the “deep debt restructuring” recently proposed by Economy Minister Martin Guzman in a speech to Congress.

More time is needed to obtain data on the sustainability of the country's debt, Georgieva said. The IMF continues to support the government of Alberto Fernández in its efforts to resume economic growth, he said.

"Broadly speaking, we are very supportive of the commitment of this government to stabilise the economy, return to growth," Georgieva said.

Members of the Productive Development Ministry held meetings with the mission team on February13 that were “mostly informative in nature,” Matías Kulfas told reporters in Buenos Aires Monday.

IMF officials asked for details on a so-called "social pact" the government is advocating to tame inflation, which includes food and utility price freezes.

“We explained that in our view, inflation has many causes,” said the Production Minister. “Focusing on tackling inflation only through monetary policy leads to mistakes. We can control inflation with a consistent macro, fiscal and monetary plan.”

Lack of global growth

Georgieva also said the lack of deeper improvements in the global economic system is hindering what’s already an “anaemic” outlook for growth, especially as the shock caused by the coronavirus further dims prospects for a pickup this year.

“The monetary policy space is shrinking and the reliance on fiscal measures as well as on structural reforms to boost growth ought to be stronger,” IMF Managing Director Kristalina Georgieva said Sunday in a Bloomberg Television interview in Dubai. What’s missing is “a more aggressive swing in structural reforms.”

As the virus’ impact raises the threat of disruption across supply chains, most major central banks are on alert but have yet to indicate that they plan monetary easing. Even before the scale of the outbreak in China became clear, the IMF predicted the world economy will strengthen in 2020 at a slightly weaker pace than previously anticipated amid threats related to trade and tensions in the Middle East.

The fallout is expected to dominate discussions at this week’s meeting of finance ministers and central bankers at a Group of 20 (G20) summit in the Saudi capital, Riyadh. Georgieva reiterated that she’s hopeful for a synchronised global response to the risks facing the world economy.

“I am quite optimistic that in very difficult moments we would see the appetite for more coordinated action,” Georgieva said.

While saying it was premature to assess the economic shock of the coronavirus, Georgieva praised China for its “very aggressive” measures to contain the impact, including with an infusion of liquidity and stimulus to the affected regions.

“We need to recognise there is a great deal of uncertainty around the nature of the virus, how exactly it is impacting China, would it spread beyond China,” she said.

HSBC Holdings Plc became the latest major bank to cut its outlook for global growth, reducing it to 2.3 percent from 2.5 percent. World Bank President David Malpass has warned that the lender will need to lower some of its growth forecasts, in part due to the virus’s impact on supply chains. Economists from Goldman Sachs Group Inc. to UBS Group AG and BNP Paribas SA see more easing steps ahead in China.

“Even a month of reduction in activities inevitably would have an impact on China and some of it would be translated to the rest of the world,” Georgieva said. “We are still hoping that the most likely scenario would be relatively rapid containment of the virus.”

by José Orozco, Yousef Gamal El-Din & Abeer Abu Omar, Bloomberg

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