Argentina won’t seek fresh IMF funding in upcoming talks

Argentina won’t seek fresh funding from the International Monetary Fund when it starts negotiations over a new programme, the nation’s representative to the Washington-based lender said.

The government will only request enough money to refinance its existing obligations with the Fund, Sergio Chodos, the IMF executive director for the Southern Cone, said in an interview Thursday. The nation plans to continue to make interest payments during the talks, he added.

“We’re basically talking about a refinancing,” Chodos said at the Economy Ministry in downtown Buenos Aires. “At this point, the intention is not to seek net new funds.”

The administration of President Alberto Fernández on Wednesday formally requested to start talks over a new programme that will address US$44 billion in payments owed to the Fund as part of a previous arrangement that failed to lift the crisis-prone economy. That would be the country’s 22nd programme with the institution since 1958.

In 2018, Fernández’s predecessor Mauricio Macri received a record US$57-billion IMF bailout, of which US$44 billion was disbursed. Funding stopped amid political volatility a year ago, and there was speculation that the Fernández administration would now request the outstanding US$13 billion from the original programme.

Chodos said he expects a new programme to be ready in the first quarter of 2021. While the format will depend on the talks, it will likely be either a stand-by agreement, like the plan agreed with Macri, or an extended fund facility, typically a longer programme.

“The format is the end point of the discussions,” he said.

Next steps

Argentina’s upcoming IMF talks will likely require that Fernández outline an economic plan explicitly. The economy is suffering from 43 percent annual inflation, the third straight year of recession and double-digit unemployment. With no access to credit, the government has printed money during the pandemic to finance stimulus measures, raising concerns that inflation will speed up.

While the country was already in contact with Fund officials since February, that is set to accelerate following the formal request, Chodos said. Some discussions will already have happened by the time the government must submit its budget proposal to Congress in mid-September, he added. The budget typically includes forecasts for the currency and government spending.

Chodos declined to give specifics on how the government will address potential sticking points in the talks such as capital and currency controls or what reserve levels might allow for easing of current restrictions. He pointed to the country’s growing ability to finance its short-term needs locally and in pesos, and noted the IMF’s changing stances on the issue.

“There has been an evolution in the Fund’s thinking on capital controls,” he said. “Some of the options that previously were considered heresy are part of the tool box today.”

On the fiscal deficit, Chodos said the talks would focus on its trend rather than the headline number. Chodos said the Fund takes into account that the pandemic is still not over and pointed to a tweet by its Managing Director Kristalina Georgieva which highlighted the need for economic recovery.

“The pandemic is already changing the IMF and what it recommends,” Chodos said. “Georgieva’s messaging is that making bold choices is the way of being responsible.”

Chodos previously held the role of Executive Director for the Southern Cone between 2014 and 2016, during the presidency of Cristina Fernández de Kirchner. Prior to his current stint at the IMF, he worked as manager of relations with the public sector at Banco de Servicios y Transacciones. He also held several roles in the public sector from 2003 onwards, including finance secretary and director of the board of Argentina’s Central Bank.

Argentina’s private bondholders have until Friday afternoon to accept a restructuring deal over US$65 billion in debt. Chodos said the expectations on that outcome are “very favourable.”