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ECONOMY | 31-07-2023 16:08

IMF to loan Argentina as much as US$10.8 billion this year

The International Monetary Fund has agreed to provide Argentina with up to US$10.8 billion in loans as part of a refinancing agreement, allowing the country to navigate its economic challenges ahead of the presidential elections, but meeting the fiscal and reserve accumulation goals will pose significant challenges according to analysts.

The International Monetary Fund will give Argentina as much as US$10.8 billion in loans for the rest of the year as part of a refinancing agreement that will help the cash-strapped nation to navigate a turbulent period ahead of presidential elections. 

The first payment of US$7.5 billion will be made in August, after approval by the IMF’s executive board in the second half of the month, the Fund said Friday in a statement, confirming its staff had reached an agreement with the government of outgoing President Alberto Fernandez. 

That means the money won’t be available before a key primary election Argentina holds on Aug. 13, nor in time for the government to repay US$2.6 billion it owes the IMF from a previous loan. 

The nation will make the payment by tapping its currency swap line with China as well as other sources of financing, according to people familiar with the matter. Argentina’s economy ministry said late Friday that it received authorization for a US$1 billion bridge loan from the Caracas-based CAF development bank. Economy Minister Sergio Massa made the financing request on Thursday.

“It’s very good news,” Massa, who’s both negotiating with the IMF and running for president in the October election, said about the IMF deal in a TV interview. “This lets us get through this second half of the year that is obviously marked by the election, which sometimes creates uncertainty or doubts, with a lot more calm.”

The next review is expected to take place in November, the fund added in the statement. While it didn’t say how much money it would release then, two people familiar with the matter said the combined disbursements for August and November would range between US$9.4 billion and US$10.8 billion. 

What Bloomberg Economic Says
“Argentina scored a partial win following protracted negotiations with the International Monetary Fund. It will have early access to the lender’s cash despite failing to meet the conditions for regular disbursements. In exchange, the fund insisted on policy measures the government has departed from in recent months, and imposed a lower, but still challenging target of net reserve accumulation.”

— Adriana Dupita, economist for Argentina and Brazil

Argentina bonds due 2030 climbed as much as 0.8 cents to around 35 cents on the dollar, their highest in six months. The nation’s parallel exchange rate, known locally as the blue chip swap, slipped 0.3% to around 559 pesos per dollar, while the official exchange rate remained around 274 pesos per dollar.

Among the conditions imposed by the Fund for the agreement are the accumulation of at least US$1 billion worth of foreign reserves by the end of the year and no direct monetary financing of Argentina’s primary deficit, which excludes interest payments. The deal also restricts the central bank’s ability to intervene in the foreign exchange market to moments of “disorderly conditions.”

“Although the agreement gives the government some room to manoeuvre prior to the general elections, meeting the new fiscal and reserve accumulation goals will be very challenging,” Jaime Reusche, a senior analyst at Moody’s Investors Service wrote in emailed comments. “Macroeconomic conditions will continue to deteriorate until the end of the year.”

By Patrick Gillespie and Eric Martin, Bloomberg

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