Argentina finishes first IMF review as path to targets may shift

Argentina’s government and the International Monetary Fund reached a staff-level agreement on the first review of the nation’s US$44-billion agreement on extra financing, with the lender saying that the country met all quantitative targets in the first quarter.

IMF officials concluded the review of the programme signed in March and known as an extended fund facility. It’s a key step toward unlocking more debt relief for Argentina, which in March refinanced money owed to the Fund from a failed programme given to the previous government in 2018.

The agreement is subject to approval by the IMF’s Executive Board, which is expected to discuss it in the coming weeks, the Fund said in a statement late Wednesday. Once the review is completed, Argentina would have access to about US$4 billion.

IMF staff and the Argentine authorities have agreed that the annual objectives established at approval of the arrangement will remain unchanged, specifically those related to the primary fiscal deficit, monetary financing and net international reserves, the Fund said.

To take into account the upfront impact of external shocks including the war in Ukraine and seasonal expenditure and import patterns, a change in the intra-year quarterly paths for the primary fiscal deficit and reserve accumulation is being proposed, while keeping the annual programme objectives unchanged, the IMF added.

Argentina’s 22nd IMF agreement is already facing investor doubts, with the country’s bonds continuing to trade in distressed levels. Analysts says it will be challenging for the government to meet key targets for accumulating reserves at the Central Bank and printing money to finance government spending. 

For example, by the end of June, the Central Bank must accumulate US$4.1 billion of net international reserves, which exclude loans and bank deposits that are part of the headline figure. Yet total reserves are up by less than half that figure so far this year (the Central Bank doesn’t publish an official figure for net reserves).

Risk of recession is also increasing. JPMorgan Chase & Co forecasts contractions in the second and third quarters this year. Some economists say accumulating reserves could impede the government’s ability to pay for dollar-denominated imports that companies need for manufacturing and other activities that help drive growth. 

The economic impact from Russia’s invasion of Ukraine is complicating Argentina’s outlook. Annual inflation is accelerating toward 60 percent with some economists expecting 70 percent by the end of this year. That’s partly a result of rising food and energy prices that are adding to higher electricity bills because the government is removing subsidies to comply with the IMF deal.