The International Monetary Fund admitted this week that its new financing programme for Argentina faces “high risks” due to the country’s economic and social situation, with added complications due to the global fall-out of Russia’s invasion of Ukraine.
Last week, the multilateral lender agreed a new financing programme with President Alberto Fernández's government to restructure Argentina’s US$44.5-billion debt with the IMF.
Celebrations, however, have been short-lived. With the ruling Frente de Todos coalition split on the deal and tensions rising, Fund officials now say they will now bring forward the deal’s first quarterly review to May. It was originally scheduled for June.
The IMF believes that it may be necessary to recalibrate policies, taking into account the war in Ukraine, Argentina’s socio-political context and the latent effects of the coronavirus pandemic.
Fund officials are also said to be concerned by the ruling coalition's internal tensions. The new deal's approval in Congress was marked by the resignation of Máximo Kirchner as head of the ruling bloc in the Chamber of Deputies, the absence of Vice-President Cristina Fernández de Kirchner for much of the debate in the Senate, and the number of negative votes from hard-line Kirchnerite lawmakers.
Addressing the dispute, the IMF warned last week that the political backing given to the agreement "may be fragile and could be weakened before the presidential elections in October 2023 or before if confidence is not rebuilt quickly.”
Speaking this week during an international press briefing, IMF Spokesperson Gerry Rice described Argentina’s situation as “fragile,” citing problems like runaway inflation, high levels of poverty and economic growth as cause for concern, among other factors.
“We believe that Argentina's programme, now supported by the IMF with this [new round of] financing, sets pragmatic and realistic objectives along with credible policies, which when implemented will strengthen macroeconomic stability and begin tackling Argentina's deep-seated challenges,” he said.
Conceding that Argentina’s inflation is “persistently high,” he said Fund officials would work the government to tackle runaway price hikes “through a multi-pronged strategy involving a gradual elimination of monetary financing of the fiscal deficit and an enhanced monetary and exchange rate policy framework.”
Rice said, however, that the programme “is fragile” and that “new shocks have materialised,” pointing to the global fall-out of the Ukraine war.
"So, it's no surprise that the risks to the Argentine economy, and therefore to the programme, are high," he said, adding that the IMF would work closely with Argentine authorities to ensure successful implementation of the programme.