The International Monetary Fund (IMF) concluded Wednesday that its record US$57-billion 2018 programme for Argentina, the largest in the multilateral lender’s history, “did not deliver on its objectives.”
“The programme did not fulfil the objectives of restoring confidence in fiscal and external viability while fostering economic growth" in Argentina, the Fund wrote in an Ex-Post Evaluation report.
The statement was issued after the IMF's executive board met to discuss the assessment of the loan, required given the size of the debt. Earlier in the day, Argentina had made a payment of nearly US$1.9 billion to the Fund, one of many payments outlined in the original 2018 deal.
The IMF is currently negotiating with Argentina to restructure its debt, which exceeds US$44 billion. President Alberto Fernández’s government decided upon taking office in December 2019 to suspend delivery of the remaining tranches of the loan negotiated by Mauricio Macri, his predecessor.
Macri, who took office in December 2015, sought IMF assistance in May 2018 amid a currency crisis. A month later, the Fund's executive board approved a 36-month stand-by agreement, which it extended that October to US$57 billion, in exchange for new policies to balance public accounts.
"The programme aimed to restore confidence, reduce balance of payments and fiscal imbalances, and bring down inflation. Restoring confidence would, in turn, allow time for the authorities to return to dealing with longer-term challenges facing the Argentine economy," the IMF said on Wednesday.
According to the body, the strategy focused on "fiscal and monetary tightening, combined with targeted structural reforms, to catalyse renewed capital inflows.”
But "the programme did not deliver on its objectives, despite significant modifications of economic policies,” the Fund said.
“Mounting redemptions, along with capital flight by residents, put considerable pressure on the exchange rate. Despite FX interventions beyond programme provisions, the exchange rate continued to depreciate, increasing inflation and the peso value of public debt, and weakening real incomes, especially of the poor," it concluded.
In Buenos Aires, Argentina’s government reacted to the IMF review by once again criticising the deal signed by Macri.
"The report was critical. It is something we already knew. We told the Fund about it, and in any case, the Fund should have admitted what we already knew," said President Fernández told reports at the Casa Rosada.
"It was an absurd loan, which we know was not used for anything good," Economy Minister Martín Guzmán told the pro-government C5N television news channel, noting that "healing the wounds" of the loan would take Argentina "no less than a decade."
"There needs to be a serious assessment of whether the IMF's charter, which should not finance capital flight, was complied with," the minister said of the 2018 credit programme.
The Peronist government is seeking a new Extended Fund Facilities agreement with the IMF that would allow it to extend its current repayment terms.
In addition to this week’s US$1.9-billion payment, under the current terms of the deal Argentina has to pay around US$19 billion to the Fund in 2022 and another US$19 billion the following year, as well as US$5 billion in 2024.
On Thursday, Presidential Spokesperson Gabriela Cerruti reiterated Argentina’s eagerness for a new deal.
"We want to reach an agreement, we want to pay the maturities, what we cannot do is do it the way they were scheduled for 2022," the official said at a press conference.
"Yesterday [Wednesday], the payment was made. It is another sign that Argentina is making progress in what it set out to do, which is to reach a sustainable agreement" with the IMF, she added.
The IMF said the body’s executive directors “regretted that the 2018 programme did not deliver on its objectives” and “considered that the programme’s strategy and conditionality was not sufficiently robust to address Argentina’s deep-seated structural problems, including fragile public finances, dollarisation, high inflation, weak monetary policy transmission, a small domestic financial sector, and a narrow export base.”
"The authorities' red lines added to policy constraints. Moreover, truly restoring confidence would have required not only improving public finances, expanding the export base and addressing other structural challenges, but also demonstrating that reforms to these ends would be durable, a complex challenge given Argentina's history and economic policy," the report added.
The IMF also acknowledged that the loan created "substantial financial and reputational risks for the Fund."
Calling on its staff to ensure the report informs their stance on talks over a new deal, the IMF’s management said that “most Directors concurred that agreeing with the authorities upfront on contingency plans could have reduced risks to the program and to the Fund, but a few directors noted the difficulties of handling such plans in practice given market sensitivities.”
The agreement, of which only four of 12 planned reviews were completed, went “off track in August 2019” and was officially cancelled on July 24, 2020 by Fernández, said the Fund. The original 2018 arrangement amounted to 1,227 percent of Argentina’s IMF quota, it added.
The report, by Norwegian economist Odd Per Brekk, number two in the Fund's Asia-Pacific Department, detailed a long list of reasons that ended up killing the stand-by agreement, while noting that any new arrangement must have a strong political consensus behind it.
"In particular, ownership must be understood in a broader social sense, especially when a government has fragile political support," the Fund wrote.
One of the report’s criticisms pointed to the decision by the Cambiemos government to tighten spending without renegotiating Argentina’s external debt with creditors or putting in place capital controls before the 2019 primary elections.
"It was well understood that the programme was high-risk,” reads the report, which observed that “there was no 'Plan B' agreed with the authorities at the outset."
In reference to the fight against inflation, Brekk argued that price hikes had come down much slower than anticipated, both by the Fund and Macri's economic team, led by Nicolás Dujovne, at the head of the then-Finance Ministry, and Guido Sandleris, leading the Central Bank.
The Norwegian economist noted that the Macri administration "judged that targeting extensive structural reforms would risk making the programme hostage to its fragile position in Congress and did not seek to build a broader coalition in support of the reforms or the programme in general."
The August 2019 primary elections dealt the death blow to a programme that Brekk's report makes clear never gained traction.