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ECONOMY | 27-01-2022 16:56

IMF payment deepens divide within Argentina’s ruling coalition

Argentina’s looming deadline to make an interest payment of over US$700 million to the International Monetary Fund on Friday is exposing a growing divide within the ruling coalition.

Argentina’s looming deadline to make an interest payment of over US$700 million to the International Monetary Fund on Friday is exposing a growing divide within the ruling coalition. 

The public disagreements in the government of President Alberto Fernández, with its more radical wing suggesting the country could default on the Washington-based organisation, come as Economy Minister Martín Guzmán leads negotiations with IMF staff for a new programme to reschedule payments on over US$40 billion in outstanding debt.

The coalition has bickered for months over how to handle the record debt load inherited from the previous administration of president Mauricio Macri. Agreeing with the IMF would imply a faster pace of unpopular spending cuts with a presidential election next year. But defaulting on the lender risks hurting Argentina’s economy even more with inflation already at 51 percent.

Argentina plans to propose a fiscal primary balance in 2026 instead of the previous goal of 2027 as part of the talks with the IMF staff, according to people familiar with the matter who asked not to be named because negotiations are private. IMF negotiators are pushing to reach fiscal equilibrium without interest payments counted in 2025, said one of the people.

Late on Thursday, the lender’s technical negotiators called for a virtual meeting to brief the board of directors on the state of negotiations with Argentina on Friday at 8am Washington time, according to a different person with direct knowledge of the matter. Additional details on the meeting were not disclosed. 

The divide over whether to pay is the latest episode of officials split between Fernández and Vice-President Cristina Fernández de Kirchner, who herself governed the nation from 2007 to 2015 as head of state. Fernández de Kirchner openly slammed the president in September for the coalition’s huge loss in a primary midterm vote, blaming him for cutting spending too much. 

Leopoldo Moreau, a lawmaker loyal to Fernández de Kirchner, said not paying the IMF on Friday wouldn’t be the end of the world for Argentina. 

“We’re not proposing a default, but they’re pushing us toward default,” he said in a radio interview Wednesday, in comments echoed by at least two other Kirchnerites the same day. 

Production Minister Matías Kulfas, an official close to Fernández, quickly rebuffed the suggestion, saying on Thursday that comments like Moreau’s are irresponsible.

“I’m convinced it’s much better for Argentina to reach a deal that lets us continue growing than, as I hear, not reaching any deal,” Kulfas said. “That hypothesis isn’t validated by reality.” 

The president’s spokeswoman, Gabriela Cerruti, avoided taking sides in her regular press conference in Buenos Aires Thursday. She would not confirm if the government will or won’t make the coming payment.

 

Low reserves

While the outstanding interest isn’t large, Argentina’s net international reserves stand at just US$1.8 billion, according to estimates by Buenos Aires-based consulting firm Anker Latinoamerica. The government is asking China for an expansion of its bilateral currency swap in yuan in an attempt to bolster those reserves, people familiar with the request told Bloomberg News earlier this week. 

In all, Argentina needs to repay the IMF about US$19 billion this year, an amount Fernández said the country can’t afford, hence the need to reach a deal that delays the payments. IMF’s First Deputy Managing Director Gita Gopinath said earlier this week that the Fund is adopting a flexible and pragmatic approach to Argentina and hoped for progress in the talks.

In the meantime, markets are pricing in a greater probability of the country falling into yet another default. A nation that misses payment enters what the IMF officially considers “arrears.”

Argentina’s foreign bonds due in 2030 edged lower on Thursday to about 31 cents on the US dollar, lingering just above an all-time low reached earlier this week. The extra yield investors demand to hold the nation’s sovereign bonds, on average, over US Treasuries rose by 20 basis points to 1,916 basis points, according to JPMorgan Chase & Co data, well above the threshold for debt to be considered distressed.

by Patrick Gillespie & Jorgelina do Rosario, Bloomberg

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