With a fresh exchange rate crisis rocking the already shaky foundations of the country’s record debt deal, Argentina and the International Monetary Fund have confirmed they’re going back to the drawing board.
Definitions differ exactly over to what extent the US$44.5-billion programme will be redrawn and revised, but Argentina is pushing for a relaxation of targets and the bringing forward of vital disbursements to shore up its international reserves.
On one point, however, Argentina and the Fund are agreed: talks are necessary and they are “progressing constructively,” as one IMF spokesperson said Tuesday.
To that end, a delegation of Argentine officials, led by Deputy Economy Minister Gabriel Rubinstein and head of the INDEC national statistics bureau Marco Lavagna, flew to Washington DC on Thursday for talks with IMF officials.
Lashing out at “rumours and false reports” that he said had sparked a run on the currency, Economy Minister Sergio Massa said this week that the “rediscussion of the programme” would be on the table.
The IMF initially remained silent, exacerbating uncertainty on markets, but eventually offered a statement on the issue – without revealing what terms could be renegotiated.
“Technical staff continue to work with the Argentine authorities to strengthen the economic programme agreed with the country in the context of the very severe drought,” said the Fund’s spokesperson.
‘Reformulate’ and ‘redraw’
The Washington meetings are taking place two weeks after Massa held face-to-face talks with the multilateral lender’s managing director, Kristalina Georgieva, and her number two, Gita Gopinath, on the sidelines of the IMF-World Bank spring meetings.
Both sides emerged from those discussions agreeing that there is a need to “reformulate” the programme in the wake of a record drought that has slashed billions off GDP.
While government sources have briefed reporters that “all the alternatives are on the table” – and one local outlet reported preemptively that the programme had “failed” – the minister is clearer about his objectives. Not only should the targets and goals outlined for 2023 be changed, Massa argues, at least part of the disbursement of funds for the rest of the year should be brought forward, a benefit Mauricio Macri’s government saw in 2019. Most analysts expect the latter request to be granted, though to what extent is unsure.
The great unknown is what happens to international reserves. With the ‘dólar agro’ policy failing to bring in vital foreign currency and the government now committed to stopping currency runs and protecting the peso, options for accumulation are limited. In the programme’s last quarterly review, confirmed last month and taking into account the impact of the record drought, the annual target was lowered by US$2 billion. It remains to be seen how helpful the IMF will be.
The target for the fiscal deficit was left unchanged at 1.9 percent of GDP, though the government will ask for greater consideration on this point.
Unconfirmed reports this week said that the IMF is willing to reconsider a renegotiation of the whole agreement, but only if Argentina’s government agrees to a part-devaluation of the currency – an unlikely outcome, given the proximity of the elections.
Alejandro Werner, former director of the IMF's Western Hemisphere Department in 2018 when ex-president Mauricio Macri requested the original US$54-billion stand-by agreement, said during a radio interview this week that "there is no evidence of very good programme implementation” in the four reviews so far. He argued the Fund should cut its losses.
"If you hypnotise IMF officials and ask if the current programme had a chance of success, they would say no," he said in statements to Radio con Vos 89.9.
Werner forecast that “the government of Alberto Fernández is not going to put on the table a reinforcement of the programme like the one Macri put on the table at the time.”
The talks in Washington have been given renewed urgency over the past two weeks as Argentina’s peso has been slammed in the currency markets. As the parallel ‘blue dollar’ rate crept closer to 500 pesos per greenback on Tuesday, Massa decided that he could not wait any longer to intervene.
Despite Central Bank interventions to prop up the currency being banned under the terms of the existing IMF programme, the minister is understood to have picked up the phone to Washington to let the Fund know of their intentions. Massa “ has the obligation to maintain stability in the country," government sources told Perfil.
"I'm not going to wait to see if we intervene or not, I'm not going to let a run by two or three speculators take me away," Massa is said to have told the IMF’s executive board, according to Pagina/12. “ I would like to remind you, the dead do not pay,” he added, using a quote once deployed by late former president Néstor Kirchner.
Government sources briefed that Massa “notified” the IMF of his decision to intervene, not ask permission. The programme has collapsed only due to the impact of drought and the US$20 billion it has shaved off the economy, according to the minister.
Massa’s main aspiration is that the agreement be recalibrated, allowing Argentina to obtain fresh international financing and build a bridge until the elections.
Under the current terms of the deal, the country is due to pay US$1.5 billion to the Fund by Monday.
"The meeting with the IMF is central. If the IMF rolls over the quarter's debt, reserves will remain at around US$36.569 billion, and we won't see a big change in the exchange rate," said economic and business analyst Salvador Di Stefano.
"If the IMF forces us to pay the quarter's debt, our reserves could fall to $30 billion," he added.
Di Stefano concluded: "It is vital that an agreement is reached with the IMF, otherwise currency and exchange rate instability could create too many problems in the current economic climate."