President Alberto Fernández has likened negotiating the nation’s debt to playing poker. This week he’ll have to show some of his cards to the International Monetary Fund.
IMF negotiators land in Buenos Aires on Wednesday for their first mission since the leftist president took office in December. Before agreeing to any changes in the terms of their current deal, they will want to see Fernández’s blueprint for tackling more than US$320 billion in total debt and for rescuing an economy that’s forecast to shrink for a third straight year.
Talks with the IMF, to which Argentina owes US$44 billion, will be key for an even bigger negotiation with bondholders to avoid a default. If the Fund declares the country’s debt unsustainable, as Fernández has repeatedly called it, it could give him more leverage to impose steeper debt losses on other creditors.
“If you talk to private creditors, many of them see the IMF as their worst enemy,” said Jimena Blanco, head of Latin America political research at consulting firm Verisk Maplecroft in Buenos Aires. “The IMF could complicate a negotiation for bondholders in the end by agreeing that under the current terms Argentina would be unable to meet is debt commitments.”
Beyond billions of dollars in debt, a lot is on the line for both sides.
Fernández pledged to voters that he’d turn around an economy that is suffering with 54 percnt inflation and high unemployment. The IMF, a perennial villain in Argentina after more than 20 financing agreements since 1958, is hoping to recover some negotiating ground with its largest borrower after the record US$56-billion loan approved in 2018 did little to improve the economy – or its reputation in the country.
Two months into office, Fernández has shelved any announcement of a comprehensible economic plan and resorted instead to an array of tax hikes, price freezes and pay raises to appease voters. His only major declaration on debt talks was that he wants to wrap them up by March 31, a deadline that will be hard to meet.
“It’s not true that we don’t have a plan, we just don’t announce it because we are in the middle of a negotiation and saying it would be showing our cards,” the president said earlier this month at an event in Paris. “We are playing poker and not with kids.
One card the government did show was what it’s asking of the IMF: “more time” to pay the capital amortisation of its latest loan that comes due between 2021 and 2023, according to Economy Minister Martín Guzmán. Otherwise, it will take “too long” for the country to make interest payments to private creditors, he said.
Although Fernández lambasted the Fund on the campaign trail, saying it was partly responsible for Argentina’s crisis, relations have thawed since he assumed power. Both sides have started speaking positively about each other more recently and, just last week, IMF Managing Director Kristalina Georgieva said she had a “very productive” meeting with with Guzmán in Rome.
It’s unclear how much tolerance the Fund will have for some of the heterodox policies in place in Argentina these days, including strict capital controls and negative real interest rates after five cuts to stimulate growth despite inflation risks.
“The gap between the mindsets of the government and the IMF is not that far apart in terms of fiscal policy, the main problem is monetary policy,” said Diego Pereira, an economist at JPMorgan who covers South American nations.
Even if both parties reach an agreement, it needs to be seen if the country will roll over its IMF debt into a new version of the same deal, known as a stand-by arrangement, or a longer-term programme that requires more reforms, called an extended fund facility programme.
The Economy Ministry declined to comment to Bloomberg for this story, as did the IMF.
On top of hosting IMF officials for a week, Guzmán is scheduled to make his most detailed analysis yet on debt sustainability in a presentation to Congress on Wednesday.
Fernández faces no good options renegotiating Argentina’s debt with creditors. If he proposes a small or negligible haircut, Argentina’s debt remains unsustainable and the government gets little breathing room to grow the economy even if bondholders would celebrate. But a debt haircut that investors perceive as too big could exclude Argentina from bond markets for an extended period of time, giving it no access to foreign currency. In the end, Argentina may provide multiple options since different bonds hold varying maturities and yields.
Beyond technical discussions, Fernández will also need political support if he wants to convince the IMF board of a deal. While the president said he garnered support from Germany, France and Spain during a trip to Europe, the United States – the Fund’s largest shareholder and key member – remains the elephant in the room.
US President Donald Trump strongly backed Fernández’s predecessor Mauricio Macri when he sought IMF aid. Macri labelled Venezuelan leader Nicolás Maduro as a dictator, serving as a Trump ally on his top policy priority for Latin America. But the Peronist leader shifted Argentina to a more neutral position, criticising Maduro’s regime without using Trump’s language.
“The thing Fernández needs most is US support,” said Héctor Torres, a former IMF executive board member who represented Argentina and other nations. “I’ve never seen a programme approved without US support, or at least the US acquiescence.”