Argentina agreement with IMF will put exceptional access to the test

As International Monetary Fund staff and Argentina move forward in talks for a new deal, the lender’s board is closely assessing whether the country meets four key criteria that would allow it to receive a large loan.

At a meeting last week between the Washington-based agency’s technical staff and its executive board, one of the key issues was how Argentina will continue to meet will meet the existing criteria to receive a loan from “exceptional access”.

The internal category, with requirements created in 2002 to guarantee the responsible use of its loans, allows a country to receive financing for more than 100% of its allocation for a single year.

Argentina is in talks to refinance more than $40 billion from a failed 2018 program, and is working around the clock to announce a staff-level deal that includes targets and commitments. That program will then have to be approved by the country’s Congress and the IMF’s executive board to be final.

The country will have to meet the criteria at its first loan and at each subsequent quarterly review, according to Martin Muhleisen, who served as chief of staff to the former managing director of the IMFChristine Lagarde.

“The board can approve a program if Argentina does not meet these criteria, but that would be a de facto change in IMF policy that should apply to all members.”, he added.

Key board members, including the United States, Germany and Japan, raised concerns in an informal meeting last week about the sustainability of Argentina’s debt and its ability to regain access to the private debt market, according to people familiar with the matter. subject, who asked not to be identified because the conversations are private. Although the program needs the formal approval of a majority of the board, the group normally operates by consensus.

The IMF press office declined to comment.

Argentina’s failed 2018 program represents more than 10 times the country’s quota with the fund.

Below is a summary of the criteria and how Argentina fits them:

1) Budget needs

The first criterion, which is that a country has large balance of payments needs, is one that IMF staff and board members agree the country meets. Net foreign exchange reserves have fallen to near zero and the country’s liquid reserves, basically what is available in cash, are negative.

2) Debt sustainability

With a ratio between Argentina’s gross public debt and GDP of 82% according to the Buenos Aires-based firm Equilibra, debt sustainability is one of the points that board members have expressed that the country may not can fulfill.

Still, there is a precedent for some flexibility. In 2010, the IMF created a “systemic exemption” for Greece, which allowed it to receive a loan of 30,000 million euros without a debt reduction operation due to concerns that a crisis could cause a serious contagion in the eurozone. Although the exemption was removed in 2016, it shows that the criteria can evolve.

“Given the situation in Argentina, I would expect the staff to go to the outer limit of interpreting how the criteria are met, and the board would have to buy into that interpretation.Muhleisen said.

3) Market access

The third criterion is to regain access to international markets, which is necessary for the country to pay its debt to the IMF after a grace period of four and a half years. Argentina restructured $65 billion of private debt abroad in 2020, but the bonds continue to trade at distress levels.

This criterion iswhich is really difficult for Argentinasaid Mark Rosen, who represented the United States on the IMF board during the Trump administration. “I’m not sure that will be in Argentina’s possibilities for some time.”.

4) ownership

The fourth exceptional access criterion is that the program has both political and institutional support, known as “ownership”. This condition would be fulfilled when Congress approves the agreement at the staff level.

Opposition from Argentina, which is more pro-business and was part of the government that signed the 2018 deal, may be less difficult to convince. For the government, the challenge will be to find support among the most radical members of its own Peronist legislators.