If there were any doubts left about what the International Monetary Fund’s (IMF) attitude toward the country would be during this period of political limbo, in which we have a lame-duck president who’s still a candidate and a virtual president-elect who’s yet to be officially elected, the lender’s top spokesperson quashed them this week: Argentina is officially on its own.
Of course, he did not say it like that, but he wasn’t too mysterious about it either. David Lipton, the Fund’s powerful number two and acting managing director until next week, said the IMF’s relationship with Argentina “may have to wait a while” because of the country’s “extremely difficult” situation.
Timing is everything in diplomacy and business. His carefully chosen words came a day after President Mauricio Macri popped in, unannounced, to a working meeting Lipton was having with Finance Minister Hernán Lacunza and Central Bank Governor Guido Sandleris in New York City. It sounded like a bureaucratic version of revenge on a silver platter. Lipton, a career professional who served as the United States’ under-secretary of the Treasury for international affairs under former president Bill Clinton, reportedly feels uneasy with the terms of the massive US$57-billion stand-by agreement the IMF struck with the country last year – and the way it was implemented.
A few hours after Lipton’s statement, the new incoming managing director, Kristalina Giorgieva, schmoozed for a few minutes with Lacunza, but she made no concrete commitments about the immediate future of the relationship. Giorgieva just said that the Fund wants “to see [Argentina] succeed.” Her language picked up on a semi-confession made this week by her predecessor, Christine Lagarde, who led the relationship with the Macri administration to such a point of closeness that Macri said at one point that the country was “in love” with her. “We did the best we could at the time when Argentine leaders came to us with a very difficult situation,” Lagarde sighed this week.
It is remarkable that most of the words the IMF bureaucrats use to refer to Argentina might also apply to their own fate as well. No wonder. The country’s participation in the IMF’s loan portfolio swelled to roughly 60 percent over the last year and a half – the staff also have pressure on them to make the entire “extremely complex” situation work out. From the IMF’s perspective, work means getting the money back. But the headlines the members of the Fund’s Board are reading now (the same ones their taxpayers back home read) is that Argentina is back on a merry-go-round of perpetual economic crisis, and that giving more money would mean losing more money into a vacuum.
“Why Argentina Faces an Economic Crisis. Again,” read the Wall Street Journal this week.
“Argentina’s Macri meets IMF backers in New York, funding questions linger,” said Reuters. “Argentine peso ‘frozen by confusion over unofficial exchange rate,” wrote the Financial Times.
This was all just this week. Meanwhile, global credit ratings are saying to whoever would want to listen that the country is already in default, despite the Macri government’s careful use of the word “reprofiling” to refer to their announcement that short-term debt repayment would be kicked forward in order to ease money needs through to December. Moody’s is one of those firms, and this week it predicted the country would sooner or later also default on its medium- and long-term debt, which has so far not been affected.
The immediate, concrete consequence is that it is now official Argentina will not get, any time soon at least, the US$5.4 billion meant to be committed on the condition that the country completes and passes the fifth revision of the stand-by agreement. Lacunza played cool in Washington and even told the IMF staffers that the country does not need that disbursement desperately – but that is not true. Pressure will continue to be on the peso in the run-up to the elections, and also the day after the election, when it is most likely that opposition Peronist Alberto Fernández will turn into an actual president-elect.
After that, the prospects for a quick understanding between lender and creditor look bleak. If judged on precedent, Fernández will play hardball from the start in order to get better negotiating terms. Under Macri, the country would have likely moved from the current stand-by to a longer-haul Extended Fund Facility agreement and pushed for more pro-market reform. Fernández will do none of that: he will instead renegotiate the repayment of the stand-by package, hoping to get as many policy conditions by as possible. Both the Casa Rosada and the Fund will have very thin margins for which they can make concessions. They will just have to do the best they can.