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ECONOMY | 24-07-2023 15:25

Argentina says IMF deal would include August disbursement

Argentina's Economy Minister Sergio Massa stated that the International Monetary Fund is set to disburse funds in August and November, pending a staff-level agreement on a US$44 billion financing program this week, aiming to bolster the country's economy and meet its debt obligations before a new president takes office in December.

Argentina Economy Minister Sergio Massa said Sunday night that the International Monetary Fund would disburse funds to the government in August and November after a staff-level agreement of its US$44 billion financing program is reached sometime this week.   

“There’s a very big package of disbursements in August and an additional one in November. It’s a very significant number for Argentina,” Massa said on the C5N TV network, adding that he wants the IMF to announce the exact figures.

Massa said the pending agreement would cover the next five months. The IMF said earlier Sunday that it expects to conclude a review of the program in the coming days, potentially giving the South American nation a lifeline to keep its economy afloat until a new president takes office in December.

The IMF said it had reached “understandings” on goals and parameters underlying a staff-level agreement that will then be submitted to its board for approval. The review’s core technical work has been finished by its staff, as well as teams from Argentina’s Economy Ministry and central bank, which have been in Washington since last week. 

“The agreement seeks to enhance fiscal sustainability and rebuild reserves, while recognizing the strong impact of the drought, the damage to exports and the country’s fiscal income,” the IMF said in a statement. 

Time is running out for Argentina to repay previous debts owed to the Washington-based lender after a record drought cost the country US$20 billion of agricultural exports. The government’s foreign reserves have fallen to critical levels, partly because the central bank has been selling dollars to avoid a major devaluation of the peso three months before the presidential election.

Argentina owes the IMF US$2.6 billion before July 31, and it’s not clear how it’ll make payment. In June, the government took the extraordinary step of paying part of an IMF maturity with Chinese yuan.

While repaying the IMF in yuan again in July remains an option, it’s not the government’s first choice, according to a senior government official, who asked not to be named discussing ongoing talks. 

Argentine sovereign bonds due in 2030 have climbed in recent weeks to around 34 cents on the dollar on expectations the nation would rework its IMF agreement and on bets voters will install a more market-friendly administration in the October election.

Investors see a peso devaluation as all but inevitable sometime this year or next. The currency has tumbled 34% this year, the worst performance among emerging markets. The official exchange rate was at 269 pesos per dollar as of Friday — in the black market, the peso trades closer to 500 per dollar.

As part of the ongoing IMF talks, two senior government officials said Argentina will on Monday roll out another temporary exchange rate for agriculture exports while raising tariffs on goods and services in a bid to preserve its central bank reserves. Some commodity exporters, including corn producers, will be able to sell abroad at 340 pesos per dollar until Aug. 31.

The government hopes the temporary rate will generate an extra $2 billion of exports. 

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The newest version of the program refinances payments from a record 2018 bailout. Argentina has struggled to meet the terms as annualised inflation soared to more than 100% and the economy slowed.

Talks have dragged on for months as Massa, Argentina’s chief negotiator, emerged as the ruling coalition’s top presidential candidate, pushing the deal further into the political spotlight.

The IMF executive board usually takes two weeks from the time of the staff-level agreement to vote on a deal, meaning it’s unclear if any disbursement will be available before July 31 to make repayment back to the Fund.

One senior Argentine official said government teams and IMF staff are working on a technical solution to get around the customary two-week period, declining to provide more specifics. 

 

---Patrick Gillespie/Bloomberg

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