The negotiation between Argentina and the IMF is approaching its “D-day”

Negotiations between Argentina and the International Monetary Fund (IMF) to refinance multi-million dollar loans granted in 2018 have been going on for more than a year and there is still a lack of consensus on core points, while heavy debt maturities are approaching as of March that the South American country will not is in a position to cope.

At the end of August 2020, after reaching an agreement with private creditors to restructure foreign law bonds for almost US $ 63.4 billion, the Government of Alberto Fernández asked the Fund to open formal talks.

But the negotiations did not begin until October 2020, when the organization sent a technical mission to Argentina, after which there were several rounds of meetings and contacts at the highest political level.

Argentina seeks to seal with the Fund an agreement of extended facilities to refinance the debts contracted from the financial assistance agreement signed in 2018 between the organization and the then Government of Mauricio Macri (2015-2019).

That agreement stipulated loans to Argentina for up to US $ 56.3 billion, of which US $ 44.2 billion were finally disbursed, a debt that currently hovers around US $ 41 billion.

internal politics

When the negotiations began, the government was betting to reach an understanding in just a few months.

The delay, according to analysts, is mainly due to errors in strategy and serious internal differences in the ruling coalition regarding the timing and scope of the adjustments and reforms that a new agreement would entail, differences that have caused “noise” in the negotiations.

“There was a strategic error by the Government of not having arranged with the Fund when it was agreed with the private bondholders because at that time the IMF was more willing to give a hand to countries with economic problems without so many requirements”, Said Leonardo Piazza, director of the consulting firm LP Consulting.

The expert also pointed out that the Government, “due to an ideological issue, the negotiations were postponed”.

The differences became manifest when the Argentine vice president, Cristina Fernández, questioned, after the defeat of the ruling party in the legislative primaries last September, the gradual fiscal moderation that the Minister of Economy, Martín Guzmán, who commands the negotiations with the government, began to apply. IMF.

This Wednesday, in a meeting with governors of the Argentine provinces in search of political support for the negotiation, Guzmán said that, although there are already agreements with the IMF on several points under discussion, there is a lack of consensus precisely on one “core” point: the fiscal .

According to the minister, while Argentina plans to lower the deficit as the economy grows, the IMF proposes “a program that with high probability would stop the economic recovery that Argentina is experiencing and that is essentially a program to adjust real spending”.

Despite these differences and the lack of international support, the government is optimistic about reaching an agreement.

According to Piazza, for the IMF it is “indispensable“Reach an understanding with Argentina, but let it be”credible“And that it does not have to be renegotiated within a few years and, in this sense, the body is concerned about how to disarm the”labyrinth”Of the exchange restrictions in Argentina and how to reduce the fiscal deficit.

Times are running out

“Now I do believe that the ideological internment in the Government is going to be unblocked because there is no other solution. Although it hurts, Cristina knows that the arrangement with the IMF is key for the economy to take off. No choice left“, Dijo Piazza.

According to the 2018 agreement, Argentina should pay the body, between capital and interest, US $ 19,020 million this year, US $ 19,270 million in 2023 and US $ 4,856 million in 2024.

The most voluminous commitments of this year begin to operate in March, when Argentina should pay US $ 2,838 million, putting even more pressure on the low level of the country’s net monetary reserves.

“The numbers rule. March is ‘D day’ and there are no more excuses for not agreeing with the FundPiazza warned.

In addition, the Paris Club has given Argentina until March 31 to agree with the IMF and extend until then the cancellation of the bulk of the country’s debt with that forum of 22 creditor countries of the South American nation.