With a debt installment of more than US$700 million due, this Friday (27th) Argentina’s payment schedule with the IMF begins, which in 2022 will total US$19 billion, an unattainable figure for this country that seeks a new agreement with the multilateral organization.
With a long history of defaults, Argentina guarantees that it wants to honor its commitments, but by extending payment terms and without adopting fiscal adjustment measures.
“When the adjustments came, our people suffered. Our fight with the IMF is to say firmly that we want to have the right to grow, as we believe we should,” center-left president Alberto Fernández declared this week.
With less than 24 hours to go, it’s still unclear what Argentina will do. “The payment depends on how the negotiations progress,” presidential spokeswoman Gabriela Cerruti said on Thursday.
In 2018, the IMF granted Argentina, during the government of liberal Mauricio Macri (2015-19), a credit of US$ 57 billion, in the midst of a currency crisis. The country received $44 billion as Fernández refused outstanding installments when he took office in December 2019.
In 2020, after restructuring around US$66 billion of debt with international private creditors, the government began negotiations with the IMF to replace the 2018 stand-by agreement with an extended facilities agreement that extends payment terms.
– Does Argentina have the capacity to pay? –
With almost no access to international credit markets, Argentina has just under $39 billion in gross reserves. But analysts estimate that the net ones, the ones it can turn to for payments, are below $4 billion. Some even estimate that the reserves are zero.
“The problem is not the debt shock on the Gross Domestic Product, the problem is the maturity structure, the fact that there is a very large debt with the IMF that matures in the short term,” explained the Minister of Economy to AFP, Martín Guzman.
Argentina’s debt with multilateral and bilateral organizations represents 17% of GDP, according to the Ministry of Economy. But in 2022 Argentina must pay the IMF 19 billion dollars, in 2023 another 20 billion dollars and in 2024 another 4 billion dollars. Also pending in March this year is a $2 billion loan from the Paris Club.
“That money doesn’t exist, Argentina doesn’t have these resources,” a source at the Argentine Foreign Ministry recently told reporters in Washington.
Argentina’s total gross debt amounts to 82.2% of its GDP, according to the latest official data for 2021.
– What happens if Argentina does not pay?
“If you don’t pay a private creditor, he has recourse to a series of legal actions, he can go to court. But the Monetary Fund is not a bank, it’s a government club, it doesn’t do that kind of thing. Leaving yourself unpaid for a day or two, I don’t think much will happen. Of course, the IMF can arrange for an extension,” Gabriel Torres, principal analyst for Argentina at rating agency Moody’s, told AFP.
If the non-compliance extends over time because the country decides not to pay because it does not agree with the conditions, the IMF could expel Argentina as a more extreme measure. “Although this is very rare and nobody thinks it will happen,” added Torres.
If Argentina does not reach an agreement with the IMF and fails to pay, other multilateral organizations, such as the Inter-American Development Bank or the World Bank, would cut their credits.
But Torres believes that the most serious consequence would be for the Argentine private sector, which could see international loans for exports “suddenly stopped because everyone is afraid to deal with a country that does not pay the IMF”.
He also cites threats about inflation, at 50% a year, which could jump sharply if Argentines rush to buy dollars as a refuge and a currency shock occurs. “The government has few reserves. Inflation can jump to 80% because the starting point is already too high,” he said.
– Can the IMF give in on its terms?
“We understand that the social and economic situation is challenging and so we are taking a flexible and pragmatic approach, and we look forward to making further progress in the coming days,” said IMF Deputy Managing Director Gita Gopinath this week.
About 500 people, militants from leftist parties, protested this Thursday in Buenos Aires against payments to the IMF, with a march that reached the presidential office.
Torres believes that it is in the interest of the IMF to reach an agreement, “because at the end of the day, it exists for that”. However, he warns that there are limits to what the organization can accept, especially regarding the fiscal deficit, monetary issuance and inflation.
“Our expectation is that the government will eventually reach an agreement, even if it resists. I would also say that this agreement is going to be difficult to enforce,” he concluded.
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