IMF says Argentina capital flow measures needed with 2018 deal

The International Monetary Fund says that its record US$56-billion programme for Argentina didn’t succeed “in improving confidence” and was “fragile from its inception” despite the size of the loan, and that both capital flow management and a private debt reprofiling might have been addressed back in 2018.

The staff report released Wednesday, known as “ex-post evaluation” and led by IMF deputy director Odd Per Brekk, is a key step in IMF procedures, which require a staff review of a programme with exceptional access. 

“An early debt operation, combined with reintroduction of capital flow management measures, could have delivered a more robust programme,” the report said. Though the evaluation added that the need for a debt operation wasn’t clear at the beginning of the programme, it was later ruled out by Mauricio Macri administration. 

Argentina’s three-year stand-by arrangement, with total disbursements for as much as US$44 billion, represents more than 10 times the country’s allowance with the Fund. President Alberto Fernández administration is negotiating a new programme with the IMF to reschedule payments owed to the Washington-based multilateral lender. 

Here are some key takeaways from the IMF’s report:

IMF Staff’s Evaluation:

– “Greater burden sharing with other official creditors could have, besides providing additional financing, signalled broader support from the international community, both of which could have supported confidence”

– “Lack of ownership by all branches of government was fatal for the programme,” the report added

– “Rapid exchange rate depreciation starting in mid-2018 made the targeted disinflation path unrealistic due to the high pass through”

– Existing debt instruments were “highly problematic”;  Central Bank liabilities known as LEBACs “were not well understood at the time of the programme request”

Argentina Views:

– Stand-by agreement was an “IMF-financed bailout to private creditors and to investors that had been speculating over carry trade opportunities”

– Real goal of the programme was to maintain 2018 government policies “at all costs, with IMF financing”

– Inflation needs to be considered as a multicausal issue in future programmes, and it can’t be addressed only by monetary policy

– IMF needs to revise “political use” of their programmes, reconsider meaning of ownership

– “Programme achieved nothing for Argentina other than massively aggravating a balance of payment problem.”